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Trainer, Wortham Funds Logo
845 Third Avenue, 6th Floor
New York, NY 10022
(800) 257-4414
FIRST MUTUAL FUND
TRAINER, WORTHAM TOTAL RETURN BOND FUND
PROSPECTUS OCTOBER 30, 1997 -- AS REVISED ON FEBRUARY 27, 1998
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TRAINER, WORTHAM FIRST MUTUAL FUNDS (the "Trust") is an open-end management
investment company which currently offers shares of two series: FIRST MUTUAL
FUND and TRAINER, WORTHAM TOTAL RETURN BOND FUND (individually and collectively,
the "Fund(s)"). Each Fund has distinct investment objectives and policies.
Trainer, Wortham & Co., Inc. (the "Advisor") serves as each Fund's Investment
Advisor. Information concerning the Funds has been combined into this one
Prospectus to aid investors in understanding the similarities and differences
among the Funds.
FIRST MUTUAL FUND seeks to achieve capital appreciation through investment in
common stocks and securities convertible into common stocks. Its secondary
objective is income.
TRAINER, WORTHAM TOTAL RETURN BOND FUND (the "TOTAL RETURN BOND FUND") seeks to
maximize total return, consistent with preservation of capital, through
investments in U.S. Government and agency securities, investment-grade corporate
bonds and other fixed-income securities.
The minimum initial investment for each Fund is $250. Subsequent investments
will be accepted in minimum amounts of $50.00.
This Prospectus sets forth concisely the information a prospective investor
should know before investing in any of the above Funds. Investors should read
this Prospectus and retain it for future reference. Additional information about
the Funds, contained in a Statement of Additional Information dated February 27,
1998, has been filed with the Securities and Exchange Commission and is
available upon request without charge by calling or writing to the Funds at the
telephone number or address shown above. The Statement of Additional Information
bears the same date as this Prospectus and is incorporated by reference in its
entirety into this Prospectus.
Shares of the Funds are not deposits or obligations of, or insured, guaranteed
or endorsed by, any bank, the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other agency, entity or person. The purchase of Fund
shares involves investment risks including the possible loss of principal.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
SUBJECT PAGE
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<S> <C>
Expense Information......................................... 3
Financial Highlights........................................ 4
Investment Objectives and Policies.......................... 6
Investment Strategies and Risk Considerations............... 7
Management of the Trust..................................... 13
Board of Trustees......................................... 13
Investment Advisor........................................ 13
Administrator............................................. 14
Distributor............................................... 14
Transfer Agent/Accounting Services Agent.................. 14
Custodian................................................. 14
Distribution Plan........................................... 14
Brokerage................................................... 15
Purchase of Shares.......................................... 15
Redemption of Shares........................................ 16
Exchange of Shares.......................................... 18
Shareholder Services........................................ 18
Net Asset Value............................................. 19
Dividends and Taxes......................................... 19
Performance Information..................................... 20
General Information......................................... 21
UNDERWRITER: INVESTMENT ADVISOR:
FPS Broker Services, Inc. Trainer, Wortham & Co., Inc.
3200 Horizon Drive 845 Third Avenue
P.O. Box 61503 New York, NY 10022
King of Prussia, PA 19406-0903 (800) 775-0604
(800) 257-4414
</TABLE>
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FOR MORE DETAILED INFORMATION ABOUT THE ITEMS DISCUSSED IN THIS PROSPECTUS, A
COPY OF THE STATEMENT OF ADDITIONAL INFORMATION MAY BE OBTAINED WITHOUT CHARGE
BY WRITING TO THE FUNDS AT 845 THIRD AVENUE, 6TH FLOOR, NEW YORK, NY 10022, OR
BY CALLING (800) 257-4414.
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EXPENSE INFORMATION
Below is a summary of the operating expenses for each Fund. A hypothetical
example based on the summary is also shown.
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ANNUAL FUND OPERATING EXPENSES(1)
(as a percentage of average net assets)
<TABLE>
<CAPTION>
FIRST MUTUAL TOTAL RETURN
FUND(2) BOND FUND(3)
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<S> <C> <C>
Management Fees (after any waivers/reimbursements).......... 0.75% 0.00%
12b-1 Fees.................................................. 0.25% n/a
Other Expenses (after any waivers/reimbursements)........... 0.87% 1.20%
----- -----
Total Fund Operating Expenses (after any
waivers/reimbursements)................................... 1.87% 1.20%
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</TABLE>
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EXAMPLE:
An investor would pay the following expenses on a $1,000 investment assuming (1)
a 5% annual return and (2) redemption at the end of each period.
<TABLE>
<S> <C> <C>
1 YEAR...................................................... $ 19 $ 12
3 YEARS..................................................... $ 59 $ 38
5 YEARS..................................................... $101 $ 66
10 YEARS.................................................... $219 $145
</TABLE>
(1) Average net assets have been computed on the basis of net assets at
month-end. TRAINER, WORTHAM TOTAL RETURN BOND FUND does not have a
Distribution Plan. The maximum fee allowable under the 12b-1 Plan for FIRST
MUTUAL FUND is 0.25%. As a result of expenses payable in connection with
First Mutual Fund's Rule 12b-1 Plan, it is possible that long-term
shareholders of that Fund may pay more than the economic equivalent of the
maximum front-end sales charges by the National Association of Securities
Dealers.
(2) Expenses for FIRST MUTUAL FUND reflect those actually incurred for the
fiscal year ended June 30, 1997.
(3) The expenses shown for the TOTAL RETURN BOND FUND reflect continuation of
the Advisor's voluntary waiver of fees and/or reimbursement of expenses,
which limited total fund operating expenses to 0.75% for the period from
October 1, 1996 (commencement of operations) through April 30, 1997.
Effective May 1, 1997, the limitation was raised to 1.20% as the Fund's net
assets exceed $7.5 million and the above ratios have been restated
accordingly. Absent any waivers and reimbursements, management fees,
estimated other expenses, and approximate total fund operating expenses
would be 0.45%, 1.65%, and 2.10%, respectively.
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THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The purpose of the table above is to assist an investor in understanding the
various costs and expenses that an investor will bear directly or indirectly.
The Funds do not impose any sales load, redemption or exchange fees; however,
the Transfer Agent currently charges investors who request redemptions by wire
transfer a fee of $9 for each transaction. For more complete descriptions of the
various costs and expenses, see the sections entitled "MANAGEMENT OF THE TRUST,"
and "DISTRIBUTION PLAN."
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FINANCIAL HIGHLIGHTS
The following financial highlights for the fiscal year ended June 30, 1997 were
derived from the Funds' financial statements dated June 30, 1997, which were
audited by Briggs, Bunting and Dougherty, LLP, independent auditors, whose
unqualified report thereon is incorporated by reference into the Statement of
Additional Information. Prior to fiscal year ended June 30, 1997, the Funds'
financial statements were audited by the Trust's previous accountants. The
Funds' Statement of Additional Information may be obtained without charge and is
incorporated by reference into this Prospectus.
The table below sets forth financial data for a share of capital stock
outstanding throughout each period presented.
FIRST MUTUAL FUND
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990* 1989 1988*
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Year................. $ 13.81 $ 10.03 $ 8.21 $ 9.29 $ 8.49 $ 9.24 $ 9.30 $ 8.03 $ 6.91 $ 8.94
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income... (0.11) (0.09) (0.09) (0.09) (0.06) 0.01 0.03 0.09 0.02 0.12
Net gains (losses) on
securities (both
realized and
unrealized)........... 0.95 4.79 2.10 (0.13) 1.09 (0.09) 0.31 1.34 1.23 (1.24)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total from
investment
operations...... 0.84 4.70 2.01 (0.22) 1.03 (0.08) 0.34 1.43 1.25 (1.12)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS
Dividends (from net
investment income).... -- -- -- -- -- (0.02) (0.06) (0.06) (0.13) (0.13)
Dividends (from capital
gains)................ (2.30) (0.92) (0.19) (0.86) (0.23) (0.65) (0.34) (0.10)(1) -- (0.68)
Distributions (from
paid-in capital)...... -- -- -- -- -- -- -- -- -- (0.10)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total
distributions... (2.30) (0.92) (0.19) (0.86) (0.23) (0.67) (0.40) (0.16) (0.13) (0.91)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net Asset Value, End of
Year.................... $ 12.35 $ 13.81 $ 10.03 $ 8.21 $ 9.29 $ 8.49 $ 9.24 $ 9.30 $ 8.03 $ 6.91
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Total Return.............. 7.67% 49.12% 25.04% (3.91%) 12.17% 1.01% 4.35% 17.88% 18.52% (14.10%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year
(in 000's)............ $33,649 $32,147 $20,281 $21,446 $19,093 $18,143 $16,606 $14,720 $13,250 $12,659
Ratio of expenses to
average net
assets(2)............. 1.87% 1.74% 2.16% 1.97% 1.99% 1.87% 2.32% 2.04% 2.15% 1.96%
Ratio of net investment
income to average net
assets(2)............. (0.96%) (0.82%) (0.77%) (0.97%) (0.61%) 0.08% 0.36% 1.03% 0.22% 1.67%
Portfolio turnover
rate.................. 109% 107% 198% 178% 172% 175% 178% 158% 197% 203%
Average commission rate
paid.................. $0.0601 $0.0683 N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
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(1) The distribution for the fiscal year 1990 represents the amount required to
be distributed for tax purposes to avoid imposition of excise taxes on
realized capital gains.
(2) Average net assets have been computed on the basis of the value of the net
assets as determined as of the end of the month.
* The investment adviser to the Fund changed on the following dates: 1/25/88
(changed from Trainer, Wortham & Co., Inc. to BIL Trainer Wortham, Inc.);
12/21/90 (changed to Trainer, Wortham & Co., Inc.).
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The table below sets forth financial data for a share of capital stock
outstanding throughout the period presented
<TABLE>
<CAPTION>
TOTAL RETURN
BOND FUND
PERIOD ENDED
JUNE 30,
1997(1)
------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 10.00
-------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss).............................. 0.41
Net gains on securities (both realized and unrealized).... 0.08
-------
Total from investment operations....................... 0.49
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LESS DISTRIBUTIONS
Dividends from net investment income...................... (0.40)
Distributions in excess of capital gains.................. (0.01)
-------
Total distributions.................................... (0.41)
-------
NET ASSET VALUE, END OF PERIOD.............................. $ 10.08
=======
TOTAL RETURN................................................ 4.90%+
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's)...................... $ 8,479
Ratio of expenses to average net assets**
before reimbursement of expenses by Advisor............ 2.01%*
after reimbursement of expenses by Advisor............. 0.88%*
Ratio of net investment income (loss) to average net
assets**
before reimbursement of expenses by Advisor............ 4.53%*
after reimbursement of expenses by Advisor............. 5.66%*
Portfolio turnover rate................................... 112%
Average commission rate paid.............................. N/A
</TABLE>
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(1 )The Total Return Bond fund commenced operations on October 1, 1996.
+ Since inception, not annualized.
* Annualized.
** Average net assets have been computed on the basis of the value of the net
assets at the end of the month.
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INVESTMENT OBJECTIVES AND POLICIES
FIRST MUTUAL FUND:
The Fund's primary investment objective is to seek capital appreciation
principally through investments in common stock. The Fund may also invest in
securities convertible into common stock such as convertible bonds or preferred
stock. Its secondary investment objective is to seek income from dividends and
interest. Due to the risks inherent in any investment program, the Fund cannot
ensure that its investment objective will be realized. The value of a share of
the Fund will fluctuate as the values of the securities in the Fund's portfolio
fluctuate.
The Fund will invest primarily in common stock and in securities convertible
into common stock. The Fund's investment strategy will emphasize companies that,
in the opinion of the Advisor, offer prospects for capital growth and growth of
earnings and dividends. The Advisor may deem it appropriate to invest in other
types of securities, consisting of obligations of the U.S. Government, its
agencies or instrumentalities. There is no limitation as to the proportion of
the Fund's assets which may be invested in any class of securities.
When, in the opinion of the Advisor, a defensive investment posture is
warranted, the Fund is permitted to invest temporarily and without limitation in
U.S. Government obligations, money market instruments (such as U.S. Treasury
bills, commercial paper, certificates of deposit and banker's acceptances) and
repurchase agreements. Assets so invested will be productive and yet readily
available (when markets are deemed attractive) for reinvestment in accordance
with the Fund's principal investment policies.
The equity securities in which the Fund invests will be traded on a national
securities exchange or traded in the over-the-counter market. Up to 15% of the
Fund's net assets may be invested in foreign securities in the form of American
Depository Receipts ("ADRs"). The Fund does not expect to invest in unsponsored
ADRs. See "INVESTMENT STRATEGIES AND RISK CONSIDERATIONS."
Although the Fund's portfolio is professionally managed, the Fund may suffer a
loss on investments resulting in a lower net asset value. The likelihood of loss
is greater than that for funds with more conservative investment policies.
TRAINER, WORTHAM TOTAL RETURN BOND FUND:
The Fund seeks to maximize total return consistent with preservation of capital.
The Fund will invest in U.S. Government and agency securities, investment-grade
corporate bonds and other fixed-income securities. The Fund will seek to produce
conservative, risk adjusted returns. Above all, management attempts to preserve
principal, compound interest and produce superior results over the course of a
full business cycle.
The Advisor relies on historical yield relationships as a basis for determining
the Fund's portfolio structure. The Advisor's securities selection process
involves strategic decision making which considers portfolio sector composition,
maturity structure and duration. The Advisor's management analyzes yield ratios
and implements a disciplined process which helps to have the Fund's portfolio
positioned to be compared to the Lehman Aggregate Index. Although the Advisor
actively manages its portfolios, it does not consider itself to be a market
timer. All changes to the portfolio are made after gradual and careful
consideration. The Advisor anticipates a turnover rate of less than 100%.
When the Fund has determined that adverse market and economic conditions
warrant, the Fund may invest all or part of its assets in high-quality money
market securities and repurchase agreements for temporary defensive purposes.
The Fund invests at least 65% of the value of its total assets (except when
maintaining a temporary defensive position) in fixed-income securities (which it
defines as bonds, debentures and other fixed-income securities). The Fund is
permitted to invest in a broad range of investment-grade, U.S. dollar
denominated fixed-income securities and securities with debt-like
characteristics (e.g., bearing interest or having stated principal) of domestic
and foreign issuers. These debt securities include: bonds, debentures, notes,
money market instruments (including foreign bank obligations, such as time
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deposits, certificates of deposit and bankers' acceptances, commercial paper and
other short-term corporate debt obligations, and repurchase agreements),
mortgage-related securities (including interest-only and principal-only stripped
mortgage-backed securities), asset-backed securities, municipal obligations and
convertible debt obligations. The issuers may include domestic and foreign
corporations, partnerships or trusts, and governments or their political
subdivisions, agencies or instrumentalities. Under normal market conditions, the
Fund seeks to provide performance results that equal or exceed the Solomon
Brothers Broad Investment-Grade (BIG) Bond Index, which is a
market-capitalization weighted index that includes U.S. Treasury, Government-
sponsored, mortgage and investment-grade fixed-rate corporate fixed-income
securities with a maturity of one year or longer and a minimum of $50 million
amount outstanding at the time of inclusion.
At least 75% of the value of the Fund's net assets must consist of securities
which, in the case of bonds and other debt instruments, are rated no lower than
"A" by Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's
Corporation ("S&P"), Fitch Investors Service, Inc. ("Fitch") or Duff & Phelps,
Inc. ("Duff"). Up to 25% of the value of the Fund's net assets may consist of
securities which, in the case of bonds and other debt instruments, are rated no
lower than "Baa" by Moody's and "BBB" by S&P. The Fund may invest in short-term
fixed-income obligations which are rated in the two highest rating categories by
Moody's, S&P, Fitch or Duff. See "INVESTMENT STRATEGIES AND RISK CONSIDERATIONS
- -- Fixed-Income Securities."
Although the Fund is professionally managed, the Fund may suffer a loss on
investments resulting in a lower net asset value.
INVESTMENT STRATEGIES AND
RISK CONSIDERATIONS
Shareholders should understand that all investments involve risk and there can
be no guarantee against loss resulting from an investment in the Funds, nor can
there be any assurance that any Fund's investment objective will be attained.
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements with respect to permissible
portfolio securities. Under the terms of a repurchase agreement, the Funds would
acquire securities from financial institutions such as banks and registered
broker-dealers which the Advisor deems creditworthy under guidelines approved by
the Board of Trustees, subject to the seller's agreement to repurchase such
securities at a mutually agreed-upon date and price. The repurchase price would
generally equal the price paid by the Funds plus interest negotiated on the
basis of then-current short-term rates, which may be more or less than the rate
on the underlying portfolio securities. The seller under a repurchase agreement
will be required to maintain the value of collateral held pursuant to the
agreement at not less than 102% of the repurchase price (including accrued
interest). If the seller were to default on its repurchase obligation or become
insolvent, the Funds would suffer a loss to the extent that the proceeds from a
sale of the underlying portfolio securities were less than the repurchase price
under the agreement, or to the extent that the disposition of such securities by
the Funds were delayed pending court action. It is the intent of each Fund to
utilize repurchase agreements to invest idle funds for short periods of time.
Securities subject to repurchase agreements will be held by the Funds' Custodian
or in the Federal Reserve/Treasury book-entry system. Repurchase agreements are
considered to be loans by the Funds under the Investment Company Act of 1940, as
amended (the "Act").
MONEY MARKET INSTRUMENTS
Each Fund may invest, in the following types of money market instruments, each
of which at the time of purchase must have or be deemed to have under rules of
the Securities and Exchange Commission remaining maturities of 13 months or
less. The Funds may invest in money market instruments and debt securities,
including bank obligations and commercial paper, which are at least comparable
in quality to each Fund's other investments. Bank obligations may include
bankers' acceptances, negotiable certificates of deposit and non-negotiable time
deposits earning a specified return, issued for a definite period of time by a
U.S. bank that is a member of the Federal Reserve System or is insured by
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the Federal Deposit Insurance Corporation, or by a savings and loan association
or savings bank that is insured by the Federal Deposit Insurance Corporation.
Bank obligations also include U.S. dollar-denominated obligations of foreign
branches of U.S. banks or of U.S. branches of foreign banks, all of the same
type as domestic bank obligations. Investments in bank obligations are limited
to the obligations of financial institutions having more than $1 billion in
total assets at the time of purchase. Investments by a Fund in non-negotiable
time deposits are limited to no more than 5% of its total assets at the time of
purchase.
U.S. TREASURY SECURITIES
Each Fund may invest in U.S. Treasury securities, including Treasury bills,
Treasury notes and Treasury bonds that differ in their interest rates,
maturities and times of issuance. Treasury bills have initial maturities of one
year or less; Treasury notes have initial maturities of one to ten years; and
Treasury bonds generally have initial maturities of greater than ten years.
U.S. GOVERNMENT SECURITIES
In addition to U.S. Treasury securities, each fund may invest in U.S. Government
securities, including securities issued or guaranteed by the U.S. Government or
its agencies or instrumentalities. Some obligations issued or guaranteed by U.S.
Government agencies and instrumentalities, for example, Government National
Mortgage Association pass-through certificates, are supported by the full faith
and credit of the U.S. Treasury; others, such as those of the Federal Home Loan
Banks, by the right of the issuer to borrow from the Treasury; others, such as
those issued by the Federal National Mortgage Association, by discretionary
authority of the U.S. Government to purchase certain obligations of the agency
or instrumentality; and others, such as those issued by the Student Loan
Marketing Association, only by the credit of the agency or instrumentality.
These securities bear fixed, floating or variable rates of interest. Principal
and interest may fluctuate based on generally recognized reference rates or the
relationship of rates. While the U.S. Government provides financial support to
such U.S. Government-sponsored agencies or instrumentalities, no assurance can
be given that it will always do so, since it is not so obligated by law.
ILLIQUID SECURITIES
No Fund will invest more than 10% of the value of its net assets in securities
that are illiquid because of restrictions on transferability or other reasons.
Repurchase agreements with deemed maturities in excess of seven days and
securities that are not registered under the Securities Act of 1933 (the "1933
Act") but that may be purchased by institutional buyers pursuant to Rule 144A
under the 1933 Act are subject to this 10% limit. Rule 144A allows for a broader
institutional trading market for securities otherwise subject to restriction on
resale to the general public by establishing a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers.
AMERICAN DEPOSITORY RECEIPTS ("ADRS")
Investments in ADRs by FIRST MUTUAL FUND are subject to special investment risks
that differ in some respects from those related to investments in securities of
U.S. domestic issuers. Such risks include potential political, social or
economic instability in the country of the issuer, the difficulty of predicting
international trade patterns, the possibility of the imposition of exchange
controls, expropriation, limits on removal of currency or other assets,
nationalization of assets, foreign withholding and income taxation, and foreign
trading practices (including higher trading commissions, custodial charges and
delayed settlements). Such securities may be subject to greater fluctuations in
price than securities issued by United States corporations or issued or
guaranteed by the U.S. Government, its agencies or instrumentalities. The
markets on which such securities trade may have less volume and liquidity, and
may be more volatile, than securities markets in the United States. In addition,
there may be less publicly available information about a foreign company than
about a U.S. domiciled company. Foreign companies generally are not subject to
uniform accounting, auditing and financial reporting standards comparable to
those applicable to domestic companies. There is generally less government
regulation of securities exchanges, brokers and listed companies abroad than in
the United States. Confiscatory taxation or diplomatic developments could also
affect investment in those countries. In addition, foreign branches of U.S.
banks, foreign banks and foreign
8
<PAGE> 9
issuers may be subject to less stringent reserve requirements and to different
accounting, auditing, reporting, and recordkeeping standards than those
applicable to domestic branches of U.S. banks and domestic issuers.
For many foreign securities, U.S. dollar-denominated ADRs, which are traded in
the United States on exchanges or over-the-counter, are issued by domestic
banks. ADRs represent the right to receive securities of foreign issuers
deposited in a domestic bank or a correspondent bank. ADRs do not eliminate the
risk inherent in investing in the securities of foreign issuers. However, by
investing in ADRs rather than directly in stock of foreign issuers, a Fund can
avoid currency risks during the settlement period for either purchases or sales.
In general, there is a large, liquid market in the United States for many ADRs.
The information available for ADRs is subject to the accounting, auditing and
financial reporting standards of the domestic market or exchange on which they
are traded, whose standards are more uniform and more exacting than those to
which many foreign issuers may be subject. The Funds may also invest in European
Depository Receipts, or EDRs, which are receipts evidencing an arrangement with
a European bank similar to that for ADRs and are designed for use in the
European securities markets.
Certain ADRs and EDRs, typically those denominated as unsponsored, require the
holders thereof to bear most of the costs of such facilities while issuers of
sponsored facilities normally pay more of the costs thereof. The depository of
an unsponsored facility frequently is under no obligation to distribute
shareholder communications received from the issuer of the deposited securities
or to pass through the voting rights to facility holders in respect to the
deposited securities, whereas the depository of a sponsored facility typically
distributes shareholder communications and passes through the voting rights.
CONVERTIBLE SECURITIES
FIRST MUTUAL FUND and TOTAL RETURN BOND FUND may purchase convertible
securities, which are fixed-income securities, such as bonds or preferred stock,
which may be converted at a stated price within a specified period of time into
a specified number of shares of common stock of the same or a different issuer.
Convertible securities are senior to common stock in a corporation's capital
structure, but usually are subordinated to non-convertible debt securities.
While providing a fixed-income stream (generally higher in yield than the income
derivable from a common stock but lower than that afforded by a non-convertible
debt security), a convertible security also affords an investor the opportunity,
through its conversion feature, to participate in the capital appreciation of
the common stock into which it is convertible.
The Funds also may invest in debt securities with warrants attached or in units
with warrants. A warrant is an instrument issued by a corporation which gives
the holder the right to subscribe to a specified amount of the corporation's
capital stock at a set price for a specified period of time.
In connection with its purchases of convertible securities (which include debt
securities with warrants), the Funds from time to time may hold common stock
received upon the conversion of the security or the exercise of the warrant. The
Fund does not intend to retain the common stock in its portfolio and will sell
it as promptly as it can and in a manner which it believes will reduce the risk
of loss in connection with the sale.
In general, the market value of a convertible security is the higher of its
"investment value" (i.e., its value as a fixed-income security) or its
"conversion value" (i.e., the value of the underlying shares of common stock if
the security is converted). As a fixed-income security, the market value of a
convertible security generally increases when interest rates decline and
generally decreases when interest rates rise. However, the price of a
convertible security also is influenced by the market value of the security's
underlying common stock. Thus, the price of a convertible security generally
increases as the market value of the underlying stock increases, and generally
decreases as the market value of the underlying stock declines. Investments in
convertible securities generally entail less risk than investments in the common
stock of the same issuer.
FIXED-INCOME SECURITIES
Investors in the TOTAL RETURN BOND FUND should be aware that even though
interest-bearing securities are investments which promise a stable stream of
income, the prices of such securities typically are inversely
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affected by changes in interest rates and, therefore, are subject to the risk of
market price fluctuations. Thus, if interest rates have increased from the time
a security was purchased, such security, if sold, might be sold at a price less
than its cost. Similarly, if interest rates have declined from the time a
security was purchased, such security, if sold, might be sold at a price greater
than its cost. In either instance, if the security was purchased at face value
and held to maturity, no gain or loss would be realized. Certain securities
purchased by the Fund, such as those with interest rates that fluctuate directly
or indirectly based on multiples of a stated index, are designed to be highly
sensitive to changes in interest rates and can subject the holders thereof to
extreme reductions of yield and possibly loss of principal.
The values of fixed-income securities also may be affected by changes in the
credit rating or financial condition of the issuing entities. Once the rating of
a security purchased by the Fund has been adversely changed, the Fund will
consider all circumstances deemed relevant in determining whether to continue to
hold the security. Holding such securities that have been downgraded below
investment-grade can subject the Fund to additional risk. Certain securities
purchased by the Fund, such as those rated "Baa" by Moody's or "BBB" by S&P,
Fitch or Duff, may be subject to such risk with respect to the issuing entity
and to greater market fluctuations than certain lower yielding, higher rated
fixed-income securities. Debt securities which are rated "Baa" by Moody's are
considered medium-grade obligations; they are neither highly protected nor
poorly secured, and are considered by Moody's to have speculative
characteristics. Debt securities rated "BBB" by S&P are regarded as having
adequate capacity to pay interest and repay principal, and while such debt
securities ordinarily exhibit adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt securities in this
category than in higher rated categories. Fitch considers the obligor's ability
to pay interest and repay principal on debt securities rated "BBB" to be
adequate; adverse changes in economic conditions and circumstances, however, are
more likely to have an adverse impact on these debt securities and, therefore,
impair timely payment. Debt securities rated "BBB" by Duff is considered to have
below average protection factors but may still be considered sufficient for
prudent investment.
FORWARD COMMITMENTS
The TOTAL RETURN BOND FUND may purchase securities on a when-issued or forward
commitment basis, which means that the price is fixed at the time of commitment,
but delivery and payment ordinarily take place a number of days after the date
of the commitment to purchase. The Fund will make commitments to purchase such
securities only with the intention of actually acquiring the securities, but the
Fund may sell these securities before the settlement date if it is deemed
advisable. The Fund will not accrue income in respect of a security purchased on
a when-issued or forward commitment basis prior to its stated delivery date.
Securities purchased on a when-issued or forward commitment basis and certain
other securities held by the Fund are subject to changes in value (both
generally changing in the same way, i.e., appreciating when interest rates
decline and depreciating when interest rates rise) based upon the public's
perception of the creditworthiness of the issuer and changes, real or
anticipated, in the level of interest rates. Such securities may expose the Fund
to risk because they may experience fluctuations in value prior to their actual
delivery. Purchasing debt securities on a when-issued or forward commitment
basis can involve the additional risk that the yield available in the market
when the delivery takes place actually may be higher than that obtained in the
transaction itself. A segregated account of the Fund consisting of cash, cash
equivalents or U.S. Government securities or other high-quality liquid debt
securities of the type in which the Fund invests at least equal at all times to
the amount of the when-issued or forward commitments will be established and
maintained at the Fund's custodian bank.
MORTGAGE-RELATED SECURITIES
Mortgage-related securities which may be purchases by the TOTAL RETURN BOND FUND
are securities collateralized by pools of mortgage loans assembled for sale to
investors by various governmental agencies, such as the Government National
Mortgage Association and government-related organizations such as the Federal
National
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Mortgage Association and the Federal Home Loan Mortgage Corporation, as well as
by private issuers such as commercial banks, savings and loan institutions,
mortgage banks and private mortgage insurance companies, and similar foreign
entities. The mortgage-related securities in which the Fund may invest include
those with fixed, floating and variable interest rates, those with interest
rates that change based on multiples of changes in interest rates and those with
interest rates that change inversely to changes in interest rates, as well as
stripped mortgage-backed securities which are derivative multi-class mortgage
securities. Stripped mortgage-backed securities usually are structured with two
classes that receive different proportions of interest and principal
distributions on a pool of mortgage-backed securities or whole loans. A common
type of stripped mortgage-backed security will have one class receiving some of
the interest and most of the principal from the mortgage collateral, while the
other class will receive most of the interest and the remainder of the
principal. In the most extreme case, one class will receive all of the interest
(the interest-only or "IO" class), while the other class will receive all of the
principal (the principal-only or "PO" class). Although certain mortgage-related
securities are guaranteed by a third party or otherwise similarly secured, the
market value of the security, which may fluctuate, is not so secured. If the
Fund purchases a mortgage-related security at a premium, all or part of the
premium may be lost if there is a decline in the market value of the security,
whether resulting from changes in interest rates or prepayments in the
underlying mortgage collateral. As with other interest-bearing securities, the
prices of certain of these securities are inversely affected by changes in
interest rates. However, though the value of a mortgage-related security may
decline when interest rates rise, the converse is not necessarily true, since in
periods of declining interest rates the mortgages underlying the security are
more likely to prepay. For this and other reasons, a mortgage-related security's
stated maturity may be shortened by unscheduled prepayments on the underlying
mortgages, and therefore, it is not possible to predict accurately the
security's return to the Fund. Moreover, with respect to stripped mortgage-
backed securities, if the underlying mortgage securities experience greater than
anticipated prepayments of principal, the Fund may fail to fully recoup its
initial investment in these securities even if the securities are rated in the
highest rating category by a nationally recognized statistical rating
organization. In addition, regular payments received in respect of
mortgage-related securities include both interest and principal. No assurance
can be given as to the return the Fund will receive when these amounts are
reinvested.
No assurance can be given as to the liquidity of the market for certain
mortgage-backed securities, such as collateralized mortgage obligations and
stripped mortgage-backed securities. Determination as to the liquidity of
interest-only and principal-only fixed mortgage-backed securities issued by the
U.S. Government or its agencies and instrumentalities will be made in accordance
with guidelines established by the Fund's Board of Trustees. In accordance with
such guidelines, the Advisor will monitor investments in such securities with
particular regard to trading activity, availability of reliable price
information and other relevant information. The Fund intends to treat other
stripped mortgage-backed securities as illiquid securities.
ASSET-BACKED SECURITIES
The TOTAL RETURN BOND FUND may invest in asset-backed securities. The
securitization techniques used for asset-backed securities are similar to those
used for mortgage-related securities. These securities include debt securities
and securities with debt-like characteristics. The collateral for these
securities has included home equity loans, automobile and credit card
receivables, boat loans, computer leases, airplane leases, mobile home loans,
recreational vehicle loans and hospital account receivables.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities do not have the benefit
of the same security interest in the related collateral. Credit card receivables
generally are unsecured and the debtors are entitled to the protection of a
number of state and federal consumer credit laws, many of which give such
debtors the right to set off certain amounts owed on the credit cards, thereby
reducing the balance due. Most issuers of asset-backed securities backed by
automobile receivables permit the services of such receivables to retain
possession of the underlying obligations. If the servicer were to sell these
obligations to another party, there is a
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<PAGE> 12
risk that the purchaser would acquire an interest superior to that of the
holders of the related asset-backed securities. In addition, because of the
large number of vehicles involved in a typical issuance and technical
requirements under state laws, the trustee for the holders of asset-backed
securities backed by automobile receivables may not have a proper security
interest in all of the obligations backing such receivables. Therefore, there is
the possibility that recoveries on repossessed collateral may not, in some
cases, be available to support payments on these securities.
MUNICIPAL OBLIGATIONS
The TOTAL RETURN BOND FUND may invest in Municipal obligations, which are debt
obligations issued by states, territories and possessions of the United States
and the District of Columbia and their political subdivisions, agencies and
instrumentalities, or multistate agencies or authorities. While in general,
municipal obligations are tax exempt securities having relatively low yields as
compared to taxable, non-municipal obligations of similar quality, certain
issues of municipal obligations, both taxable and non-taxable, offer yields
comparable and in some cases greater than the yields available on other
permissible investments. Municipal obligations generally include debt
obligations issued to obtain funds for various public purposes as well as
certain industrial development bonds issued by or on behalf of public
authorities.
Municipal obligations are classified as general obligation bonds, revenue bonds
and notes. General obligation bonds are secured by the issuer's pledge of its
faith, credit and taxing power for the payment of principal and interest.
Revenue bonds are payable from the revenue derived from a particular facility or
class of facilities or, in some cases, from the proceeds of a special excise or
other specific revenue source, but not from the general taxing power. Tax-exempt
industrial development bonds, in most cases, are revenue bonds and generally do
not carry the pledge of the credit of the issuing municipality, but generally
are guaranteed by the corporate entity on whose behalf they are issued.
Dividends received by shareholders which are attributable to interest income
received by it from municipal obligations generally will be subject to Federal
income tax. Municipal obligations bear fixed, floating or variable rates of
interest, which are determined in some instances by formulas under which the
municipal obligation's interest rate will change directly or inversely to
changes in interest rates or an index, or multiples thereof, in many cases
subject to a maximum and minimum. The Fund currently intends to invest no more
than 25% of its assets in municipal obligations. However, this percentage may be
varied from time to time without shareholder approval.
ZERO COUPON AND STRIPPED SECURITIES
The TOTAL RETURN BOND FUND may invest in zero coupon U.S. Treasury securities,
which are Treasury notes and bonds that have been stripped of their unmatured
interest coupons, the coupons themselves and receipts or certificates
representing interests in such stripped debt obligations and coupons. The Fund
also may invest in zero coupon securities issued by corporations and financial
institutions which constitute a proportionate ownership of the issuer's pool of
underlying U.S. Treasury securities. A zero coupon security pays no interest to
its holder during its life and is sold at a discount to its face value at
maturity. The amount of the discount fluctuates with the market price of the
security. The market prices of zero coupon securities generally are more
volatile than the market prices of securities that pay interest periodically and
are likely to respond to a greater degree to changes in interest rates than
non-zero coupon securities having similar maturities and credit qualities.
Federal income tax law requires the holder of a zero coupon security or of
certain pay-in-kind bonds to accrue income with respect to these securities
prior to the receipt of cash payments. If the Fund invests in such securities it
may be required, in order to maintain its qualification as a regulated
investment company and avoid liability for Federal income taxes, to distribute
the income accrued with respect to these securities and may have to dispose of
portfolio securities under disadvantageous circumstances in order to generate
cash to satisfy these distribution requirements.
FOREIGN GOVERNMENT OBLIGATIONS; SECURITIES OF SUPRANATIONAL ENTITIES
The TOTAL RETURN BOND FUND may invest in U.S. dollar denominated obligations
issued or guaranteed by one or
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more foreign governments or any of their political subdivisions, agencies or
instrumentalities that are determined by the Advisor to be of comparable quality
to the other obligations in which the Fund may invest. Such securities also
include debt obligations of supranational entities. Supranational entities
include international organizations designated or supported by governmental
entities to promote economic reconstruction or development and international
banking institutions and related government agencies. Examples include the
International Bank for Reconstruction and Development (the World Bank), the
European Coal and Steel Community, the Asian Development Bank and the
InterAmerican Development Bank. The percentage of the Fund's assets invested in
securities issued by foreign governments will vary depending on the relative
yields of such securities, the economic and financial markets of the countries
in which the investments are made and the interest rate climate of such
countries.
OTHER FOREIGN SECURITIES
The TOTAL RETURN BOND FUND may invest in U.S. dollar denominated obligations of
foreign corporations. Investing in securities issued by foreign corporations
involves considerations and possible risks not typically associated with
investing in obligations issued by domestic corporations. Less information may
be available about foreign companies than about domestic companies, and foreign
companies generally are not subject to the same uniform accounting, auditing and
financial reporting standards or to other regulatory practices and requirements
comparable to those applicable to domestic companies.
The risks associated with investing in foreign securities are often heightened
by investments in developing or emerging markets. Investments in emerging or
developing markets involve exposure to economic structures that are generally
less diverse and mature and to political systems which can be expected to have
less stability, than those of more developed countries. Moreover, the economies
of individual emerging market countries may differ favorably or unfavorably from
the U.S. economy in such respects as the rate of growth in gross domestic
product, the rate of inflation, capital reinvestment, resource self-sufficiency
and balance of payments position.
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES
Under Delaware law, the business and affairs of the Trust are managed under the
direction of the Board of Trustees. There are currently eight Trustees, five of
whom are not "interested persons" of the Trust within the meaning of that term
under the Act. The Trustees, in turn, elect the officers of the Trust to
supervise actively its day-to-day operations. The Statement of Additional
Information contains the name and background information regarding each Trustee.
INVESTMENT ADVISOR
Trainer, Wortham & Co., Inc. (the "Advisor"), with offices at 845 Third Avenue,
New York, NY 10022 is the Trust's Investment Advisor and manager and is
registered as an investment adviser under the Investment Advisers Act of 1940,
as amended.
The Advisor, organized in 1990, continues an investment counseling business
which began in 1924 as Trainer & Associates. The Advisor supervises
approximately $2.3 billion in investment accounts and is owned entirely by the
officers active in the day-to-day management of portfolios. By reason of his
ownership of 32% of the Advisor's stock, Charles V. Moore may be said to be a
"controlling person" of that firm.
Pursuant to an Investment Advisory Agreement with the Trust on behalf of FIRST
MUTUAL FUND, the Advisor receives an annual fee, accrued daily and paid monthly,
of 0.75% of the Funds' average daily net assets.
Pursuant to the Investment Advisory Agreement with the Trust on behalf of TOTAL
RETURN BOND FUND, the Advisor receives an annual fee, accrued daily and paid
monthly, of 0.45%of the Fund's average daily net assets. From time to time, the
Advisor may waive receipt of these fees and/or voluntarily assume certain Fund
expenses, which would have the effect of lowering the Fund's expense ratio and
increasing the yield to investors at the time such amounts are waived or
assumed, as
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<PAGE> 14
the case may be. The Fund will not reimburse the Advisor at a later time for the
expenses assumed.
Subject to the general supervision of the Board of Trustees, and in accordance
with each Fund's investment objectives, policies, and restrictions, the Advisor
manages the Funds' investment portfolios, makes decisions with respect to and
places orders for all purchases and sales of the portfolio securities. The
President of the Trust, David P. Como, has been primarily responsible for the
day-to-day investment management of First Mutual Fund's portfolio since 1982.
Mr. Como has been a Managing Director of the Advisor since September 1990, and
was Managing Director and Vice President of BIL, Trainer, Wortham & Co., its
predecessor company, from 1988 through September 1990.
John D. Knox is the Vice-President and Portfolio Manager of the TOTAL RETURN
BOND FUND. Mr. Knox joined Trainer Wortham in December, 1995 as the Managing
Director of Fixed Income. Prior to joining Trainer Wortham, Mr. Knox served as
Director of Global Fixed Income and Managing Director from 1994-1995 for Bear
Sterns Asset Management and Bear Stearns, respectively. For more than 11 years
prior thereto, Mr. Knox was a Principal and Senior Portfolio Manager at Morgan
Stanley Asset Management where he managed fixed income portfolios for a variety
of domestic and international clients.
ADMINISTRATOR
The Trust, on behalf of the Funds, has entered into an administrative services
agreement dated July 25, 1996, (the "Administration Agreement") with FPS
Services, Inc. ("FPS"), 3200 Horizon Drive, P.O. Box 61503, King of Prussia, PA
19406-0903, pursuant to which the Administrator receives a fee accrued daily and
paid monthly of 0.15% of the value of each Fund's first $50 million of total
average net assets; 0.10% of the value of each Fund's next $50 million of total
average net assets; and 0.05% of the value of each Fund's total average net
assets in excess of $100 million, subject to an annual minimum fee of $72,000
for the Trust.
The term of the Administration Agreement is two years and shall continue in
force each year thereafter, so long as such continuance is approved (i) by FPS;
(ii) by vote, cast in person at a meeting called for the purpose, of a majority
of the Board of Trustees who are not parties to the Administration Agreement or
interested persons (as defined in the Act ) of any such party, and (iii) by vote
of a majority of the Board of Trustees or a majority of the Funds' outstanding
voting securities. The Trust and FPS may terminate the Administration Agreement
at any time without penalty upon giving the other party 120 days written notice.
The Administration Agreement shall automatically terminate in the event of its
assignment.
The services FPS provides to the Funds include: coordinating and monitoring of
any third parties furnishing services; providing the necessary office space,
equipment and personnel to perform administrative and clerical functions;
preparing, filing and distributing of proxy materials, periodic reports to
shareholders, registration statements and other documents; organizing of board
meetings; and responding to shareholder inquiries.
DISTRIBUTOR
FPS Broker Services, Inc. ("FPSB") serves as the Funds' Distributor on a best
efforts basis. FPSB is an affiliated company of FPS inasmuch as both are under
common ownership.
TRANSFER AGENT AND ACCOUNTING SERVICES AGENT
FPS also serves as the Funds' Transfer Agent, Dividend Disbursing Agent,
Redemption Agent and Accounting Services Agent. In such capacities, FPS is
responsible for providing record-keeping and administrative services (including
calculation of net asset value) and for processing share purchases and
redemptions. Correspondence relating to purchases and redemptions of Fund
shares, or to dividend payments or reinvestment, should be addressed to FPS
Services, Inc.
CUSTODIAN
UMB Bank, n.a., Kansas City, Missouri, is Custodian for the securities and cash
of the Funds.
DISTRIBUTION PLAN
The shareholders of the FIRST MUTUAL FUND adopted a Plan of Distribution (the
"Plan"), effective October 31, 1991 pursuant to Rule 12b-1 under the Act. The
Plan
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was last approved by the Board of Trustees on October 21, 1997. The Plan permits
the Fund to pay certain expenses associated with the distribution of its shares.
The Plan provides that the Fund will reimburse FPSB for actual distribution and
shareholder servicing expenses incurred by FPSB not exceeding, on an annual
basis, 0.25% of the Fund's average daily net assets. Amounts expended by FPSB,
but not reimbursed by the Fund, in any year will not be a continuing liability
of the Fund in subsequent years. Because the Fund reimburses FPSB only for
actual expenditures, FPSB realizes no profit from the Plan. The Plan may be
terminated by either party at any time and the Fund shall have no liability for
expenses that were not reimbursed as of the date of termination.
All such payments made pursuant to the Plan shall be made for the purpose of
promoting the sale of shares or other such distribution related expenses,
including any distribution or service fees paid to securities dealers,
investment advisors, financial planners, and others, who have executed a
distribution agreement with FPSB. Distribution expenses which are attributable
to more than one Fund will be allocated among the Funds in proportion to their
relative net assets.
BROKERAGE
The Advisor will attempt to place portfolio transactions for the Funds with
those brokers and dealers who will execute orders in an effective manner at the
most favorable price. When the execution and price offered by two or more
brokers or dealers are comparable, the Advisor may, in its discretion, purchase
and sell portfolio securities to and from brokers and dealers who provide
research advice and other services. The Advisor may give consideration to the
sale of shares of the Funds as a factor in the selection of brokers and dealers
to execute portfolio transactions subject to seeking best price and execution.
The Funds may pay brokerage commissions to brokers which are affiliated with
Officers and Trustees of the Funds, provided that such transactions are in
compliance with Section 17(e)(2) of the Act.
PORTFOLIO TURNOVER
The rate of portfolio turnover will depend on the investment strategy
implemented by the Advisor for the Funds which will vary over any given time
period, but may be influenced by the following: general market conditions;
valuation analysis; market volatility; and technical analysis. It is not the
policy of the Funds to invest with the goal of generating short-term trading
profits, rather the Funds seek to generate long-term capital appreciation when
possible by holding investments over a full market cycle, normally 2-3 years. It
is anticipated that the Funds' investment objectives and strategies will result
in a portfolio turnover rate of less than 100%, except for FIRST MUTUAL FUND
which is not expected to exceed 150% over the course of a fiscal year; however
market conditions may cause turnover to exceed 150% in certain years. High
portfolio turnover involves correspondingly greater brokerage commissions and
other costs, which are borne directly by the Funds.
PURCHASE OF SHARES
Shares are offered for sale by the Funds on a continuous basis at each Fund's
net asset value. Purchasers of the Funds shares pay no "sales load" or
underwriting commission, although broker-dealers effecting purchases or sales of
Fund shares for their customers may charge a service fee in connection
therewith. The minimum initial investment in a Fund is $250.00. Existing
shareholders may purchase additional shares with a minimum purchase of $50 per
transaction.
Purchases of the Funds are made at the net asset value per share next determined
after receipt by FPS as Transfer Agent of a purchase order in good order. Thus,
for orders received in good order before 4:00 p.m. (Eastern time), the public
offering price will be the net asset value determined as of 4:00 p.m. (Eastern
time) that day. Orders for Fund shares received after 4:00 p.m. (Eastern time)
will be purchased at the next determined net asset value on the business day
following receipt of the order.
INVESTING BY TELEPHONE
The Funds may accept telephone orders from broker-dealers or service
organizations which have been previ-
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ously approved by the Trust. It is the responsibility of such broker-dealers or
service organizations to promptly forward purchase orders and payments for same
to the Funds. Shares of the Funds may be purchased through broker-dealers, banks
and bank trust departments which may charge the investor a transaction fee or
other fee for their services at the time of purchase. Such fees would not
otherwise be charged if the shares were purchased directly from the Funds.
INVESTING BY MAIL
Prospective shareholders may purchase shares of the Funds by completing and
signing the "Investment Application" enclosed with this Prospectus and sending
the application, together with a check payable to, "NAME OF FUND", c/o FPS
Services, Inc., 3200 Horizon Drive, P.O. Box 61503, King of Prussia, PA
19406-0903. Except as noted below, purchases without full payment will not be
processed until payment is received. The ownership of shares shall be recorded
on the books of the Transfer Agent in an account under the shareholder's name. A
confirmation of the purchase will be issued showing the account number and
number of shares owned.
INVESTING BY WIRE
Shares may also be purchased by instructing the bank to wire Federal Funds to
the Transfer Agent. Federal Funds are monies of member banks within the Federal
Reserve System. The bank must include the full name(s) in which the account is
registered and the Fund account number, and should address its wire as follows:
UMB BANK KC NA
ABA # 10-10-00695
FOR: FPS SERVICES, INC.
A/C 98-7037-071-9
FBO "FIRST MUTUAL FUND,"
OR
"TRAINER, WORTHAM TOTAL RETURN BOND FUND"
Account of (exact name(s) of account registration)
Shareholder Account #
When opening a new account by wire transfer, first telephone the Transfer Agent
at 800-441-6580 to request an account number and furnish the respective Fund
with a social security or other tax identification number. A completed
application with signature(s) of registrant(s) must be filed with the Transfer
Agent immediately subsequent to the initial wire. Federal Funds wires must be
made in amounts of $250 or more. The bank will generally charge a fee for this
wire. The Funds will not be responsible for the consequences of delays,
including delays in the banking or Federal Reserve wire systems.
SUBSEQUENT INVESTMENTS
Once a shareholder's account has been established, additional purchases may be
made by sending a check payable to "NAME OF FUND" c/o FPS Services, Inc., P.O.
Box 412797, Kansas City, MO 64141-2797. Please enclose the stub of the account
statement and include the Fund account number on the check (as well as the
attributable year for retirement plan investments, if applicable). Additional
purchases may also be made through an Automatic Investment Plan which provides
shareholders a convenient method to make regularly scheduled subsequent
investments. See "SHAREHOLDER SERVICES."
REDEMPTION OF SHARES
IN GENERAL
The Trust will make your redemption proceeds available as promptly as possible
and, in any event, within seven business days after your redemption order, in
proper order, is received. For your redemption order to be in proper order, your
order must include name as it appears on your account, your account number and a
signature guarantee as required as described below. However, your redemption
proceeds may be delayed if you purchased the shares to be redeemed by check
(including certified or cashier checks) until such check has cleared and the
Trust has collected good funds for your purchase. Such collection may take 15
days or more.
REDEMPTIONS BY WRITTEN REQUEST
Shareholders may redeem shares by mail by writing directly to the Transfer Agent
at FPS Services, Inc., 3200 Horizon Drive, P.O. Box 61503, King of Prussia, PA
19406-0903, and requesting liquidation of all or any
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<PAGE> 17
part of their shares. The redemption request must be signed exactly as the
shareholder's name appears on the form of registration and must include the
Fund's account number. If shares are owned by more than one person, the
redemption request must be signed by all owners exactly as their names appear in
the registration. Shares registered in the name of corporations, trusts and
fiduciaries can be redeemed only upon instructions of a duly authorized person.
To protect the account, the Transfer Agent and the Funds from fraud, signature
guarantees are required for certain redemptions. Signature guarantees are
required for: (1) all redemptions of $25,000 or more; (2) any redemptions if the
proceeds are to be paid to someone other than the person(s) or organization in
whose name the account is registered; (3) any redemptions which request that the
proceeds be wired to a bank (unless bank information was received at the time
the account was established); and (4) requests to transfer the registration of
shares to another owner. The Transfer Agent requires that signatures be
guaranteed by an "eligible guarantor institution" as defined in Rule 17Ad-15
under the Securities Exchange Act of 1934. Eligible guarantor institutions
include banks, broker-dealers, credit unions, national securities exchanges,
registered securities associations, clearing agencies and savings associations.
Broker-dealers guaranteeing signatures must be a member of a clearing
corporation or maintain net capital of at least $100,000. Credit unions must be
authorized to issue signature guarantees. Signature guarantees will be accepted
from any eligible guarantor institution which participates in a signature
guarantee program. The Transfer Agent cannot accept guarantees from notaries
public. The Transfer Agent may require additional supporting documents for
redemptions made by corporations, executors, administrators, trustees and
guardians.
Shares will be redeemed at the net asset value, next determined after receipt of
a redemption request in proper form. Moreover, under the Act, the right of
redemption may be suspended when (a) trading on the New York Stock Exchange is
restricted or such Exchange is closed for other than weekends or holidays, (b)
the Securities and Exchange Commission has by order permitted such suspension,
or (c) an emergency exists making disposal of portfolio securities or valuation
of net assets not reasonably practicable. When in the opinion of the Board of
Trustees, conditions exist which make payments in cash on redemption unwise or
undesirable, the Funds may make payment of redemption in securities.
The value of a shareholder's shares upon redemption may be more or less than
their cost depending upon the value of a Fund's portfolio securities at the time
of redemption.
REDEMPTIONS BY TELEPHONE
Shareholders who have so indicated on the application, or have subsequently
arranged in writing to do so, may redeem shares by instructing the Transfer
Agent by telephone at (800) 441-6580.
In order to arrange for redemption by wire or telephone after an account has
been opened, or to change the bank or account designated to receive redemption
proceeds, a written request must be sent to the Transfer Agent at the address
listed under "Investing by Mail." Such requests must be signed by the
shareholder, with signatures guaranteed (see "Redemptions By Written Request"
for details regarding signature guarantees). Further documentation may be
requested from corporations, executors, administrators, trustees, or guardians.
The Funds reserve the right to refuse a wire or telephone redemption if it is
believed advisable to do so. Procedures for redeeming Fund shares by wire or
telephone may be modified or terminated at any time by the Funds. Neither the
Funds nor any of their service contractors will be liable for any loss or
expense in acting upon telephone instructions that are reasonably believed to be
genuine. In attempting to confirm that telephone instructions are genuine, the
Funds will use such procedures as are considered reasonable, including
requesting a shareholder to correctly state his or her Fund account number, the
name in which his or her account is registered, his or her social security
number, banking institution, bank account number, and the name in which his or
her bank account is registered. To the extent that the Funds fail to use
reasonable procedures to verify the genuineness of telephone instructions, it
and/or its service contractors may be liable for any such instructions that
prove to be fraudulent or unauthorized.
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Shares of the Funds may be redeemed through certain broker-dealers, banks and
bank trust departments who may charge the investor a transaction fee or other
fee for their services at the time of redemption. Such fees would not otherwise
be charged if the shares were redeemed directly from the Funds.
EXCHANGE OF SHARES
You may exchange your shares of any Fund of the Trust for shares of either of
the other Fund at net asset value without the payment of any fee or charge in
writing or by telephone. An exchange is considered a sale of shares and may
result in capital gain or loss for Federal income tax purposes. Before an
exchange can be made, you must have received the current Prospectus for the Fund
into which you wish to exchange, and the exchange privilege may be exercised
only in those states where shares of such Fund, as the case may be, may legally
be sold. If the Transfer Agent receives exchange instructions from you in
writing or by telephone at (800) 441-6580, in good order by the Valuation Time
on any Business Day, the exchange will be effected that day. For your exchange
request to be in good order, your request must include your name as it appears
on your account, your account number, the amount to be exchanged, the name of
the Funds from which and to which the exchange is to be made and a signature
guarantee as may be required. A written request by you for an exchange in excess
of $25,000 must be accompanied by a signature guarantee as described under
"Redemptions -- By Written Request."
SHAREHOLDER SERVICES
The following special services are available to shareholders. An investor may
change or stop these services at any time by written notice to the Funds.
AUTOMATIC INVESTMENT PLAN
The Funds have an Automatic Investment Plan which provides shareholders with a
convenient method by which investors may have amounts deducted directly from
their checking accounts for investment in a Fund. The minimum initial and
subsequent investments for the Funds also apply when using this method of
investing. To begin participating in this Plan, use the Automatic Investment
Plan Application found in the back of this Prospectus.
SYSTEMATIC CASH WITHDRAWAL PLAN
The Funds have a Systematic Withdrawal Plan, which provides for voluntary
automatic withdrawals of at least $50 monthly, quarterly, semi-annually or
annually. Shareholders who purchase or already own $5,000 or more of a Fund's
shares, valued at the current public offering price, and who wish to receive
periodic payments may establish a Systematic Withdrawal Plan. In order to
qualify for this option, dividends and capital gains must be reinvested.
RETIREMENT PLANS
The Funds have available certain Individual Retirement Accounts for use by
certain individuals who qualify (including earned income from self-employment).
More detailed information about how to participate in these IRA Plans, the fees
charged by the Custodian bank, and brochures containing other pertinent
information, may be obtained by contacting the Funds at (800) 257-4414.
The Taxpayers Relief Act which was signed into law on August 5, 1997, impacts
the traditional IRA and creates two additional types of IRAs.
Traditional (deductible) IRAs:
The Taxpayers Relief Act will gradually increase the adjusted gross income
phaseouts for deductible IRAs over the next ten years. Married individuals may
make deductible contributions even if spouses are active participants in an
employer-sponsored plan. The 10% early withdrawal tax will not apply for up to
$10,000 for first-time home purchases or education expenses.
Roth IRAs:
The Taxpayers Relief Act has created the new Roth IRA. While contributions to a
Roth IRA are not currently deductible, the amounts within the accounts
accumulate tax-free and qualified distributions will not be included in a
shareholder's taxable income. The contribution limit is $2,000 annually ($4,000
for joint returns) in aggregate
18
<PAGE> 19
with contributions to Traditional IRAs. Certain income phaseouts apply.
Education IRAs:
The Taxpayers Relief Act has also created the new Education IRA. Like the Roth
IRA, contributions are non-deductible, but the investment earnings accumulate
tax-free, and distributions used for higher education expenses are not taxable.
Contributions limits are $500 per account and certain income phaseouts apply.
NET ASSET VALUE
The net asset value per share of capital stock of the Funds will be determined
each business day on which the New York Stock Exchange is open for business as
of the close of regular trading hours (currently 4:00 p.m. Eastern time) and for
any other day (other than a day on which no shares are tendered for redemption
and no order to purchase or sell any shares is received) during which there is a
sufficient degree of trading in the Funds' portfolio securities that the Funds'
net asset value per share might be materially affected. Determination of net
asset value will be in accordance with generally accepted accounting principles
and will be computed by dividing the value of each Fund's total net assets by
the total number of shares outstanding. Securities traded on a securities
exchange are valued at the last sale price prior to the time of computation or,
if there have been no sales on that day, at the mean of their closing bid and
asked prices. Securities not traded on a securities exchange but for which
market quotations are readily available will be valued at the mean of their bid
and asked prices, although securities traded over the counter on NASDAQ will be
valued at their last sale price. Securities not traded on a securities exchange
and other securities or assets for which market quotations are not readily
available will be valued at fair value as determined in good faith by the Board
of Trustees. Once the aggregate value of all securities has been determined,
there will be added to this total the dollar amount of cash on hand and
receivables and the value of all other assets. From the sum of the foregoing,
the aggregate amount of all liabilities and all accrued expenses will be
deducted to produce the total net asset value of all shares outstanding.
DIVIDENDS AND TAXES
Each Fund intends to distribute substantially all of its net investment income
and net capital gains. FIRST MUTUAL FUND intends to distribute its net
investment income at least annually and to distribute its net capital gains, if
any, at least annually. Dividends, if any, from net investment income will be
declared and paid quarterly by the TOTAL RETURN BOND FUND. Dividends from net
investment income or net short-term capital gains will be taxable to you,
whether received in cash or in additional shares.
The Funds permit any shareholder located in states where the Funds' shares are
registered (regardless of the number of shares owned) to elect a Dividend
Reinvestment Plan for the automatic reinvestment of all distributions. If a
dividend is declared from net investment income or a capital gains distribution
is declared from net capital gains, investors electing under the Dividend
Reinvestment Plan are required to take such dividends or distribution in Fund
shares rather than in cash. The full amount of the distribution will be invested
and the shareholder will be credited with any full or fractional shares
resulting. The investment under the Dividend Reinvestment Plan will be made at
the current net asset value on the dividend payable date. Dividends and capital
gains distributions will result in a taxable event for the investor even though
invested in shares.
An investor may elect or terminate participation in the Dividend Reinvestment
Plan at any time. Elections to participate must be made using the Investment
Application. Termination can be made by written notice. Costs of the Plan will
be borne by the Funds. There is no assurance that such Plan will result in a
profit for an investor.
TAXES
Each Fund intends to qualify annually to be treated as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). As such, each Fund will not be subject to Federal income tax, or to any
excise tax, to the extent its earnings are distributed as provided in the Code
and by satisfying certain other requirements relating to the sources of its
income and diversification of its assets.
19
<PAGE> 20
The TOTAL RETURN BOND FUND'S investment in certain bonds, such as zero coupon
bonds, may cause the Fund to recognize income and make distributions prior to
the receipt of cash payments. These bonds are subject to special tax rules
concerning the amount, character and timing of income required to be reported by
the Fund and distributed.
For corporate investors in the Funds, dividends from net investment income will
generally qualify in part for the corporate dividends-received deduction.
However, the portion of the dividends so qualified depends on the aggregate
qualifying dividend income received by the Funds from domestic (U.S.) sources.
Distributions paid by the Funds from capital gains, whether received in cash or
in additional shares, are taxable to investors as capital gains, regardless of
the length of time an investor has owned shares in the Fund. The Funds do not
seek to realize any particular amount of capital gains during a year; rather,
realized gains are a by-product of management activities. Consequently, capital
gains distributions may be expected to vary considerably from year to year.
Also, if purchases of shares in a Fund are made shortly before the record date
for a capital gains distribution or a dividend, a portion of the investment will
be returned as a taxable distribution.
Dividends which are declared in October, November or December to shareholders of
record in such a month but which, for operational reasons, may not be paid to
the shareholder until the following January, will be treated for tax purposes as
if paid by a Fund and received by the shareholder on December 31 of the calendar
year in which they are declared.
A sale or redemption of shares of a Fund is a taxable event and may result in a
capital gain or loss to shareholders subject to tax.
Each year, the Funds will mail information to shareholders on the tax status of
the Funds' dividends and distributions made to shareholders.
The Funds are required to withhold 31% of taxable dividends, capital gains
distributions, and redemptions paid to shareholders who have not complied with
IRS taxpayer identification regulations. You may avoid this withholding
requirement by certifying on your account registration form your proper taxpayer
identification number and by certifying that you are not subject to backup
withholding.
The Taxpayers Relief Act, which was signed into law on August 5, 1997, is the
most wide-ranging tax legislation since 1986. Several provisions therein will
impact the taxation of capital gains.
Change in Rates:
The Taxpayers Relief Act has lowered the tax rate for long-term capital gains
from 28% to 20%, but increases the holding period of the assets from more than
one year to more than eighteen months. For persons in the 15% income tax
bracket, the new rate is 10%.
Realized gains from capital assets held more than one year, but eighteen months
or less, will be taxed at a 28% rate. Such gains will be termed "mid-term"
capital gains.
Also, capital gains in property held for more than five years will be eligible
for an 18% tax rate, but this only applies to assets acquired after December 31,
2000; therefore, a shareholder will not benefit from this provision until the
year 2006.
The tax discussion set forth above is included for general information only.
Prospective investors should consult their own tax advisers concerning the
Federal, state, local or foreign tax consequences of an investment in the Funds.
PERFORMANCE INFORMATION
From time to time, performance information regarding the Funds, such as total
return, may be quoted in advertisements or in communications to shareholders.
These performance quotations represent a Fund's past performance, and should not
be considered as representative of future results. The Funds' total return may
be calculated on an average annual and/or aggregate basis for various periods
(which will be stated in all advertisements). Average annual total return
reflects the average percentage change per year in the value of an investment in
the Funds. Aggregate total return reflects the total percentage change over the
stated period. In calculating total return, the assumption is made that
dividends and
20
<PAGE> 21
capital gain distributions made by the Funds during the period are reinvested in
additional shares.
Total return of each Fund may be compared to: other mutual funds with similar
investment objectives; other relevant indices; rankings prepared by independent
services; and financial or industry publications and/or other publications or
services that monitor the performance of mutual funds, such as Lipper
Analytical, CDA/Weisenberger, the Investment Company Institute, Morningstar,
Inc., the Dow Jones Composite Average or its component indices and Standard &
Poor's 500 Stock Index or its component indices, among others.
The TOTAL RETURN BOND FUND may also advertize its yield. The Fund's yield is
calculated by dividing the net investment income per share earned during a
recent 30-day (or one month) period by the maximum public offering price per
share on the last day of the period.
The principal value of an investment in each Fund will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
Graphs which compare the increase in value of a $10,000 investment in each Fund
with the performance of its relevant Index and a discussion of performance are
included in the Funds' Annual Report dated June 30, 1997.
GENERAL INFORMATION
ORGANIZATION
Each Fund is a separate Series of shares of TRAINER, WORTHAM FIRST MUTUAL FUNDS,
a Delaware business trust organized pursuant to a Trust Instrument dated January
17, 1995. On October 1, 1996, the name of the Trust was changed from First
Mutual Funds to its present name. The Trust is registered under the Act as an
open-end management investment company commonly known as a mutual fund. The
Trustees of the Trust may establish additional series or classes of shares of
the Trust without the approval of shareholders. The assets of each Fund belong
only to that Fund, and the liabilities of each Fund are borne solely by that
Fund and no other.
DESCRIPTION OF SHARES
Each Fund is authorized to issue an unlimited number of shares of beneficial
interest with a par value of $0.001 per share. Shares of each Fund represent
equal proportionate interests in the assets of the Fund only and have identical
voting, dividend, redemption, liquidation and other rights. All shares issued
are fully paid and non-assessable, and shareholders have no preemptive or other
right to subscribe to any additional shares. Currently, there is only one class
of shares issued by the Funds.
SHAREHOLDER MEETINGS
The Board of Trustees do not intend to hold annual meetings of shareholders of
the Funds. The Board of Trustees has undertaken to the Securities and Exchange
Commission, however, that they will promptly call a meeting for the purpose of
voting upon the question of removal of any Trustee when requested to do so by
holders of not less than 10% of the outstanding shares of the Fund. In addition,
subject to certain conditions, shareholders of the Funds may apply to the Funds
to communicate with other shareholders to request a shareholder's meeting to
vote upon the removal of a Trustee or Trustees.
21
<PAGE> 22
CERTAIN PROVISIONS OF TRUST INSTRUMENT
Under Delaware law, the shareholders of the Funds will not be personally liable
for the obligations of the Trust; a shareholder is entitled to the same
limitation of personal liability extended to shareholders of corporations.
SHAREHOLDER REPORTS AND INQUIRIES
Shareholders will receive annual financial statements which are audited by the
Funds' independent accountants, Briggs, Bunting and Dougherty, LLP as well as
unaudited semi-annual financial statements. Shareholder inquiries should be
addressed to, "NAME OF FUND", c/o FPS Services, Inc., 3200 Horizon Drive, P.O.
Box 61503, King of Prussia, PA 19406-0903 or by calling (800) 257-4414.
22
<PAGE> 23
TRUSTEES:
Robert H. Breslin, Jr.
David P. Como
Raymond Eisenberg
David Elias
Robert S. Lazar
Martin S. Levine
Therese C. Thibadeau
James F. Twaddell
For additional information about the
Trainer Wortham Funds call:
800.257.4414
TWF LOGO
845 Third Avenue/6th Floor, New York, New York 10022
800.257.4414 - Fax: 415.288.1401
PROSPECTUS
OCTOBER 30, 1997
AS REVISED ON
FEBRUARY 27, 1998
TWF LOGO
FIRST MUTUAL FUND
TOTAL RETURN BOND FUND
800.257.4414
<PAGE> 24
TRAINER, WORTHAM FUNDS
FIRST MUTUAL FUND
TRAINER, WORTHAM TOTAL RETURN BOND FUND
THIS IS YOUR
INVESTMENT APPLICATION
Detach and mail to:
FPS SERVICES, INC.
3200 HORIZON DRIVE
P.O. BOX 61503
KING OF PRUSSIA, PA 19406-0903
<PAGE> 25
TRAINER, WORTHAM FUNDS INVESTMENT APPLICATION
1. INITIAL FUND INVESTMENT
Please indicate the amount you are investing in each fund. The minimum
initial investment is $250 for each fund in which you invest.
[ ] First Mutual Fund: $ ____________________
[ ] Trainer, Wortham Total Return Bond Fund: $ ____________________
2. INITIAL INVESTMENT METHOD
[ ] Check (made payable to the appropriate fund)
[ ] Wire sent on (date) ____________________ for credit to
account no. ____________________ *
*Before making an initial investment by wire, you must be assigned an account
number by calling (800) 441-6580. Have your local bank wire fund to:
UMB Bank, NA
ABA#10-10-00695
For: FPS Services, Inc.
A/C98-7037-071-9
FBO "Fund Name"
Account of "registration name"
Account Number _______________________________
3. REGISTRATION AND SOCIAL SECURITY NUMBER (PLEASE PRINT)
INDIVIDUAL OR JOINT ACCOUNT:
----------------------------------------------------------------------------
Owner's First Name Middle Initial Last Name Owner's Social Security #
----------------------------------------------------------------------------
Joint Owner's First Name Middle Initial Last Name Joint Owner's Social
Security #
GIFT TO MINOR
----------------------------------------------------------------------------
Name of Custodian (one name only)
----------------------------------------------------------------------------
Name of Minor Minor's Social Security #
Under the _________________________________________ Uniform Gift/Transfer to
Minors Act
State
CORPORATIONS, PARTNERSHIPS, TRUSTS AND OTHERS (Complete attached Corporate
Resolution)
-----------------------------------------------------------------------------
Name of Corporation, Partnership, Trust or Other
-----------------------------------------------------------------------------
Name of Trustee(s) Date of Trust Tax Identification No.
4. MAILING ADDRESS OF RECORD AND TELEPHONE NUMBER(S)
-----------------------------------------------------------------------------
Street Address & Apt. No. City State Zip
( ) ( )
------------------------------ -------------------------------
Day Telephone Evening Telephone
5. DISTRIBUTION OPTIONS (All distributions will be reinvested unless otherwise
indicated below.)
[ ] Reinvest (dividends and capital gains in additional shares)
[ ] Cash Dividends (dividends in cash, capital gains in additional shares)
[ ] All Cash (dividends and capital gains in cash)
<PAGE> 26
6. SYSTEMATIC WITHDRAWAL PLAN (minimum initial investment of $5,000 is
required) I wish to have the following amount(s) systematically withdrawn
from:
<TABLE>
<S> <C>
First Mutual Fund $________________
Trainer, Wortham Total Return Bond Fund $________________
</TABLE>
Please indicate the frequency of withdrawal, and if other than monthly, the
desired months. Liquidations take place on or about the 25th of the month.
[ ] Monthly
[ ] Quarterly ______________ , ______________ , ______________ and
______________
[ ] Semi annually ______________ and ______________
[ ] Annually
Unless indicated otherwise in Section 8, a check will be sent to your
address of record.
7. TELEPHONE PRIVILEGE
[ ]I (We) authorize FPS Services, Inc. And/or Trainer, Wortham Funds to act
upon instructions received by telephone from me (us) to redeem shares or
to exchange for shares of other Trainer, Wortham Funds. I (We) understand
an exchange is made by redeeming shares of one fund and using the
proceeds to buy shares of another fund. Exchanges must be made into
identically registered accounts. Redemption proceeds will be sent as
indicated in this prospectus.
If not otherwise indicated below, only exchanges will be allowed.
[ ]Redemption [ ] Exchange [ ] Both
8. REDEMPTIONS
(Unless otherwise indicated below, all redemptions will be sent by check.)
[ ]All redemption proceeds should be executed by an ACH transaction unless
FPS Services, Inc. is notified in writing. There is no charge for ACH
transactions. Allow 3 business days.
[ ]All redemptions proceeds should be executed by FED wire transaction
unless FPS Services, Inc. is notified in writing. There is a $9 charge
for FED wire transactions.
All FED wire and ACH transactions will be sent as indicated below. Please
allow one month for ACH instructions to become effective. Any changes in
these instructions must be made in writing with signature guarantees as
described in the prospectus. *Please notify your bank of your intent to
establish this option on your account. *ATTACH A VOIDED CHECK OR DEPOSIT
SLIP.
<TABLE>
<S> <C>
Bank Name Branch Office
</TABLE>
----------------------------------------------------------------------------
Bank Address
----------------------------------------------------------------------------
<TABLE>
<S> <C>
Bank Wire Routing Number Account Number
</TABLE>
----------------------------------------------------------------------------
Name(s) on Bank Account
9. SIGNATURE AND CERTIFICATION
(Required by Federal tax law to avoid backup withholding.)
"By signing below, I certify under penalty of perjury that the social
security or tax payer identification number entered above is correct (or I
am waiting for a number to be issued to me), and that I have not been
notified by the IRS that I am subject to backup withholding unless I have
checked the box." If you have been notified by the IRS that you are subject
to backup withhold, check box. [ ]
"The Internal Revenue Service does not require your consent to any provision
of this document other than the certificates required to avoid backup
withholding.
"I hereby acknowledge receipt of a current prospectus."
----------------------------------------------------------------------------
Signature [ ] Owner [ ] Custodian [ ] Trustee Date
----------------------------------------------------------------------------
Signature of Joint Owner (if applicable) Date
10. INVESTMENT DEALER INFORMATION
----------------------------------------------------------------------------
Name of Firm
----------------------------------------------------------------------------
Firm Address
----------------------------------------------------------------------------
Rep Name & Number
----------------------------------------------------------------------------
Signature
<PAGE> 27
THIS SECTION TO BE COMPLETED BY CORPORATIONS, TRUSTS AND OTHER ORGANIZATIONS
RESOLUTIONS
RESOLVED: That this corporation or organization become a shareholder of Trainer,
Wortham First Mutual Funds (the "Trust") and that
- --------------------------------------------------------------------------------
(Name(s) of officers)
is (are) hereby authorized to complete and execute the Application on behalf of
the corporation or organization and take any action for it as may be necessary
or appropriate with respect to its shareholder account(s) with the Trust, and it
is FURTHER RESOLVED: That any one of the above-noted officers is authorized to
sign any documents necessary or appropriate to appoint FPS Services, Inc. as
redemption agent of the corporation or organization for shares of the Trust, to
establish or acknowledge terms and conditions governing the redemption of said
shares or to otherwise implement the privileges elected on the application.
CERTIFICATE
I hereby certify that the foregoing resolutions are in conformity with the
Charter and By-Laws or other empowering documents of the
_______________________________________________________________________________
(Name of Corporation/Organization)
incorporated or formed under the laws of
_________________________ and were adopted at a meeting of the Board of Trustees
(State)
of the corporation or organization duly called and held on
__________________________________ at which a quorum was present and acting
(Date)
throughout, and that the same are now in full force and effect.
I further certify that the following is (are) the duly elected officer(s) of the
corporation or organization, authorized to act in accordance with the foregoing
resolutions.
Name Title
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Name Title
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Witness my hand and the seal of the corporation or organization this ____ day
of _____ , 19__.
- ---------------------------------------------------------
*Secretary-Clerk
- ---------------------------------------------------------
Other Authorized Officer (if required)
*If the secretary or other recording officer is authorized to act by the above
resolutions, this certificate must also be signed by another officer.
<PAGE> 28
TRAINER, WORTHAM FUNDS
AUTOMATIC INVESTMENT PLAN APPLICATION
FPS Services, Inc., P.O. Box 61503, King of Prussia, PA 19406-0903
(610) 239-4500
INSTRUCTIONS
HOW DOES IT WORK?
1. FPS Services, Inc., through our bank, United Missouri Bank KC N.A., draws an
Automatic Clearing House (ACH) debit electronically against your personal
checking/ savings account each month, according to your instructions.
2. Choose any amount of $50.00 or more that you would like to invest regularly
and your debit for this amount will be processed by FPS Services, Inc., as if
you had written a check yourself.
3. Shares will be purchased and a confirmation sent to you.
HOW DO I SET IT UP?
1. Complete both sides of this form, and the Investment Application form if you
do not have an existing account.
2. Include initial investment check of $250.00 or more if you are establishing a
new account.
3. If you are using a Credit Union, please have your financial institution
verify the bank information.
4. Mark one of your personal checks or deposit slips VOID, attach it to this
form and mail to FPS Services, Inc. at the above address.
5. As soon as your bank accepts your authorization, debits will be generated and
your Automatic Investment Plan started. In order for you to have Automatic
Clearing House (ACH) debits from your account, your bank must be able to
accept ACH transactions and/or be a member of an ACH association. Your bank
manager should be able to tell you your bank's capabilities. We cannot
guarantee acceptance by your bank.
6. Please allow one month for processing before the first debit occurs.
7. Returned items will result in a $20.00 fee being deducted from your account.
MONTHLY WITHDRAWAL AMOUNT AND DATE
Please indicate the fund and amount you would like invested monthly. The minimum
amount for monthly investment is $50.
<TABLE>
<S> <C>
[ ] First Mutual Fund $________________
[ ] Trainer, Wortham Total Return Bond Fund $________________
</TABLE>
Date of Withdrawal: (check only one) [ ] 10th [ ] 15th [ ] 20th
ACCOUNT INFORMATION
Indicate One: [ ] I am in the process of establishing a new account
[ ] I have an established account. My account number is:
- -
- --------------------------------------------------------------------------------
Registered Owner
- -
- --------------------------------------------------------------------------------
Street Address
- -
- --------------------------------------------------------------------------------
City State Zip Code
- -
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Day Time Phone Number Evening Phone Number
</TABLE>
BANK INFORMATION
Complete the following or attach a voided check below. If you are using a Credit
Union account, please complete this section and have your financial institution
verify the information.
- -
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Bank Account Owner Joint Owner
</TABLE>
- -
- --------------------------------------------------------------------------------
Bank Name
- -
- --------------------------------------------------------------------------------
Bank Branch Street Address
- -
- --------------------------------------------------------------------------------
City State Zip Code
- -
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ABA Number (9 digits) Account Number
</TABLE>
Type of Account: [ ] Checking [ ] Savings
AUTHORIZATION AND SIGNATURE
I understand that my ACH debit will be dated on the day of each month I have
indicated on this form. I agree that if such a debit is not honored upon
presentation, FPS Services, Inc. may discontinue this service and any share
purchase made upon deposit on such debit may be canceled. I further agree that
if the net asset value of the shares purchased with such debit is less when said
purchase is canceled than when the purchase was made, FPS Services, Inc. shall
be authorized to liquidate other shares or fractions thereof held in my account
to make up the deficiency. This Automatic Investment Plan may be discontinued by
FPS Services, Inc. upon 30 days written notice or at any time by the investor by
written notice to FPS Services, Inc. which is received no later than five (5)
business days prior to the above designated investment date.
- --------------------------------------------------------------------------------
SIGNATURE OF BANK ACCOUNT OWNER
- --------------------------------------------------------------------------------
SIGNATURE OF JOINT BANK ACCOUNT OWNER
<PAGE> 29
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 30, 1997
As Revised on February 27, 1998
- --------------------------------------------------------------------------------
TRAINER, WORTHAM FIRST MUTUAL FUNDS
FIRST MUTUAL FUND
TRAINER, WORTHAM TOTAL RETURN BOND FUND
- --------------------------------------------------------------------------------
Trainer, Wortham First Mutual Funds (the "Trust") currently offers shares of
the following two Series, representing separate portfolios of investments:
FIRST MUTUAL FUND AND TRAINER, WORTHAM TOTAL RETURN BOND FUND (the "Fund(s)").
Information concerning each Fund is provided in the Prospectus, dated February
27, 1998. This Statement of Additional Information is not a Prospectus, but
should be read in conjunction with the current Prospectus for the Funds. Much
of the information contained herein expands upon subjects discussed in the
Prospectus. No investment in shares should be made without first reading the
Prospectus. A copy of the Prospectus may be obtained without charge by writing
to the Trust, at 845 Third Avenue, 6th Floor, New York, NY 10022 or by calling
(800) 257-4414.
UNDERWRITER: INVESTMENT ADVISOR:
FPS Broker Services, Inc. Trainer, Wortham & Co., Inc.
3200 Horizon Drive 845 Third Avenue, 6th Floor
P.O. Box 61503 New York, NY 10022
King of Prussia, PA 19406-0903 (212) 759-7755
(800) 257-4414
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS STATEMENT OF ADDITIONAL INFORMATION OR IN
THE PROSPECTUS IN CONNECTION WITH THE OFFERING MADE BY THE PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE TRUST OR ITS DISTRIBUTOR. THE PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY THE TRUST OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN
WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
- --------------------------------------------------------------------------------
Trainer, Wortham First Mutual Funds - PEA #58 Page 1
<PAGE> 30
TABLE OF CONTENTS
Page
----
Trainer, Wortham First Mutual Funds...........................................
Investment Objectives and Policies............................................
Investment Restrictions.......................................................
Other Investment Restrictions.................................................
Trustees and Officers.........................................................
Control Persons and Principal Holders of Securities...........................
Investment Advisor............................................................
Administrator.................................................................
Distributor...................................................................
Distribution Plan ............................................................
Transfer Agent and Accounting Services Agent..................................
Custodian.....................................................................
Legal Counsel.................................................................
Auditors .....................................................................
Brokerage.....................................................................
Individual Retirement Accounts................................................
Performance Calculations......................................................
General Information...........................................................
Financial Statements..........................................................
- --------------------------------------------------------------------------------
Trainer, Wortham First Mutual Funds - PEA #58 Page 2
<PAGE> 31
TRAINER, WORTHAM FIRST MUTUAL FUNDS
Trainer, Wortham First Mutual Funds (the "Trust"), 845 Third Avenue, 6th Floor,
New York, NY 10022, is an open-end management investment company, which
currently offers shares of the following two Funds, each with its own
investment objectives and policies: FIRST MUTUAL FUND and TRAINER, WORTHAM
TOTAL RETURN BOND FUND (TOTAL RETURN BOND FUND).
INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT OBJECTIVES
FIRST MUTUAL FUND
The Fund seeks to achieve capital appreciation through investment in common
stocks and securities convertible into common stocks. Its secondary objective is
income.
TOTAL RETURN BOND FUND
The Fund seeks to maximize total return, consistent with preservation of
capital.
INVESTMENT POLICIES
The following discussion of investment techniques and instruments should be read
in conjunction with the "INVESTMENT OBJECTIVE AND POLICIES" and "INVESTMENT
STRATEGIES AND RISK CONSIDERATIONS" sections of the Prospectus.
The Board of Trustees may, in the future, authorize a Fund to invest in
securities other than those listed herein and in the Prospectus, provided such
investment would be consistent with that Fund's investment objective and that it
would not violate any fundamental investment policies or restrictions applicable
to that Fund.
The following discussion applies to all of the Funds.
Each Fund will not, as to 75% of its total assets, purchase the securities of
any one issuer (other than cash, cash items, and obligations of the United
States Government) if immediately thereafter, and as a result of the purchase,
the Fund would (a) have more than 5% of the value of its total assets invested
in the securities of such issuer, or (b) hold more than 10% of any or all
classes of the securities of any one issuer. The Funds will not invest in the
securities of other investment companies. Although permitted under the Trust's
Declaration of Trust and By-laws, the following types of transactions are not
currently anticipated:
1. Investment in restricted securities (including non-marketable
securities);
2. Engaging in short selling; and
3. Arbitrage activities.
- --------------------------------------------------------------------------------
Trainer, Wortham First Mutual Funds - PEA #58 Page 3
<PAGE> 32
Although it is not the current intention of the Funds to borrow, each Fund may
borrow for the purpose of investing in portfolio securities. To the extent that
the Funds borrow money, they will incur interest expense. Any investment gains
made with the additional funds in excess of interest paid will cause the net
asset value of the Fund's shares to rise faster than would, otherwise be the
case. Conversely, any investment losses from such monies will cause the net
asset value of the Funds shares to fall faster than would otherwise be the case.
The foregoing investment policies may be changed without shareholder approval
except to the extent they are reflected in a Fund's fundamental policies. (See
"INVESTMENT RESTRICTIONS" below.)
INVESTMENT RESTRICTIONS
The Funds have adopted the following restrictions with respect to their
investment policies. These restrictions are fundamental policies, and may not be
changed as to a Fund unless authorized by the vote of a majority of the
outstanding shares of the Fund, as that term is defined herein under the section
entitled "GENERAL INFORMATION" below.
(a) UNDERWRITING OF SECURITIES: The Funds will not engage in the
underwriting of securities of other issuers.
(b) DIVERSIFICATION: The Funds have adopted the policy prohibiting
it from, as to 75% of each Fund's total assets, investing more
than 5% of its total assets in the securities of any one issuer
(other than securities issued by the Government or its agencies
or instrumentalities).
(c) INDUSTRY CONCENTRATIONS: The Funds may not purchase the
securities of issuers conducting their principal business
activities in the same industry, other than obligations issued
or guaranteed by the U.S. Government, its agencies or
instrumentalities if immediately after such purchase the value
of a Fund's investments in such industry would exceed 25% of
the value of the total assets of the Fund.
(d) PURCHASE AND SALE OF REAL ESTATE: The Funds will not engage in
the purchase and sale of interests in real estate except that
the Funds may engage in the purchase and sale of marketable
securities which may represent indirect interests in real
estate.
(e) PURCHASE AND SALE OF COMMODITIES OR COMMODITY CONTRACTS: The
Funds will not engage in the purchase and sale of commodities
or commodity contracts.
(f) MAKING OF LOANS TO OTHER PERSONS: The Funds will not make loans
to any person or company, except that the Funds may purchase a
portion of an issue of publicly distributed bonds, debentures
or other debt securities and except further that the Funds may
enter into repurchase agreements.
(g) BORROWING OF MONEY: From time to time, the Funds may borrow
money. All such borrowings shall be exclusively from banks. The
purpose of such borrowings shall be both for temporary use and
to provide funds for the purchase of additional investments
whenever the Board of Trustees of the Trust shall deem it
desirable. In connection with any such borrowing, a Fund shall
issue promissory notes or other evidences of indebtedness and
shall, when required, pledge, assign or otherwise encumber its
assets, provided, however, (i) that immediately after such
borrowing it shall have an asset coverage of at least 300% for
all its borrowing and (ii) that in the event such asset
coverage shall at any time fall below 300% it shall, within
three days thereafter (not including Sundays and holidays) or
such longer periods as the U.S. Securities and Exchange
Commission (the "SEC") may prescribe by rules and regulations,
reduce the amount of its borrowings to an extent that the asset
coverage of the borrowings shall be at least 300%.
- --------------------------------------------------------------------------------
Trainer, Wortham First Mutual Funds - PEA #58 Page 4
<PAGE> 33
(i) SECURITIES OF OTHER INVESTMENT COMPANIES: The Funds will not
invest in the securities of other investment companies.
(j) ISSUANCE OF SENIOR SECURITIES: The Funds are not authorized to
issue securities senior to the shares offered by this
Prospectus, except in connection with borrowings under the
terms described above under "BORROWING OF MONEY."
OTHER INVESTMENT RESTRICTIONS
(a) The Funds may not invest in oil, gas or mineral leases;
(b) The Funds may invest up to 5% of their total assets at the time
of purchase in warrants. Included within this amount, but not to
exceed 2% of the Fund's total assets are warrants which are not
listed on the New York Stock Exchange or the American Stock
Exchange. This restriction does not apply to warrants initially
attached to securities purchased by the Funds;
(c) The Funds will not invest in real estate limited partnerships;
and
(d) The Funds will not purchase securities on margin, but the Funds
may obtain such short-term credits as may be necessary for the
purchase and sale of securities.
(e) Purchase or retain the securities of any issuer if, to the
knowledge of a Fund, any Officer or Trustee of the Fund or of
its Investment Advisor owns beneficially more than 1/2 of 1% of
the outstanding securities of such issuer, and such Officers and
Trustees of the Fund or of its Investment Advisor who own more
than 1/2 of 1%, own, in aggregate, more than 5% of the
outstanding securities of such issuer.
TRUSTEES AND OFFICERS
The Trustees and Executive Officers of the Trust, their addresses, affiliations,
if any, with Trainer, Wortham & Co., Inc. (the "Advisor") and principal
occupations during the past five years, are as follows:
<TABLE>
<CAPTION>
NAME, AGE POSITION(S) AGGREGATE TOTAL PRINCIPAL OCCUPATION(S) DURING THE PAST FIVE
& ADDRESS HELD WITH COMPENSATION COMPENSATION YEARS
TRUST FROM TRUST FROM TRUST AND
FOR FISCAL FUND COMPLEX
YEAR ENDED PAID TO TRUSTEES
6/30/97
<S> <C> <C> <C> <C>
James F. Twaddell (58) Chairman of Investment Banker at Schneider Securities, Inc.
c/o Schneider Securities, Inc. the Board; $4,100 $4,100 since June 1995; Chairman of the Board,
2 Charles Street Trustee since Director and Registered Representative of
Providence, RI 02904 1979 Barclay Investment, Inc. until June 1995.
Robert H. Breslin, Jr. (69) Trustee since Partner in the law firm of Breslin & Sweeney,
107 Forge Road 1979; $5,000 $5,000 Warwick, RI. since 1970.
E. Greenwich, RI 02818 Member of
Audit
Committee
David P. Como(1)(51) Trustee since $0 $0 Managing Director, Trainer, Wortham & Co.,
388 Market Street 1984; Inc. since 1969.
2nd Floor President
San Francisco, CA 94111
</TABLE>
- --------------------------------------------------------------------------------
Trainer, Wortham First Mutual Funds - PEA #58 Page 5
<PAGE> 34
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Raymond Eisenberg (74) Trustee since President of Raymond Eisenberg & Associates,
414 County Street 1960; $5,000 $5,000 PC Accountants and Auditors, New Bedford,
New Bedford, MA 02740 Chairman of MA since 1980.
the Audit
Committee
David Elias(1)(52) Trustee since $0 $0 President and Chief Investment Officer of Elias
500 Essjay Road 1991 Asset Management, Inc., Buffalo, NY since
Suite 220 1978.
Williamsville, NY 14221
Robert S. Lazar (53) Trustee since Retired in 1992 ; formerly an Engineer,
P.O. Box 4158 1976; $5,000 $5,000 Newport, RI; Director, Newport Federal
Middletown, RI 02842-0011 Member of Savings Bank, Newport, RI.
the Audit
Committee
H. Williamson Ghriskey, Jr. Vice- $0 $0 Managing Director, Trainer, Wortham & Co.,
(53) President and Inc. from 1978 to present.
845 Third Avenue Treasurer
Sixth Floor
New York, NY 10022
Martin S. Levine (44) Trustee since Controller and Chief Financial Officer of John
c/o John P. Picone, Inc. 1994; $5,000 $5,000 P. Picone, Inc., Contractors and Engineers,
31 Garden Lane Member of Lawrence, NY, since 1984.
Lawrence, NY 11559 the Audit
Committee
Terri Thibadeau(1)(50) Trustee since $0 $0 Private Investor; Member of the Board of St.
167 Seabreeze Avenue 1995 Edwards Church in Palm Beach, FL since
Palm Beach, FL 33480 1990.
Debra L. Clark (38) Secretary $0 $0 Mutual Fund and Marketing Distribution Agent
388 Market Street for Trainer, Wortham First Mutual Funds from
2nd Floor 1993 to present; Vice-President & Director of
San Francisco, CA 94111 Fund/Plan Broker Services, Inc. from 1987 to
1993.
Charles H.G. Honey (26) Vice- $0 $0 Sr. Research Analyst, Trainer, Wortham & Co.,
845 Third Avenue President Inc. since May 1994; Equity Analyst,
Sixth Floor Woodward and Associates from June 1993 to
New York, NY 10022 May 1994.
<FN>
1 "Interested person" within the meaning of Section 2(a)(19) of the
Investment Company Act of 1940, as amended (the "Act"). Mr. Como
is an "interested person" by reason of his affiliation with the
Advisor and as a result of being an Officer of the Trust. Mr.
Elias may be regarded as an "interested person" by reason of a
material business relationship with the Advisor. Ms. Thibadeau is
an "interested person" because she is Mr. Como's sister.
</TABLE>
The Audit Committee of the Board of Trustees of the Trust was established to
consider such matters as the selection of the independent certified public
accountant for the Trust, review of the auditor's report on accounting
procedures and internal controls, review of the quarterly reports on brokerage
commissions paid by the Trust, and other issues referred to the Committee by the
full Board. The Audit Committee is currently comprised of four disinterested
Trustees; under the Trust's By-laws, the President also serves as an Ex-Officio
member of the Audit Committee.
- --------------------------------------------------------------------------------
Trainer, Wortham First Mutual Funds - PEA #58 Page 6
<PAGE> 35
As of June 30, 1997, the compensation for disinterested Trustees included a fee
of $500 per meeting of the Board of Trustees attended and an annual retainer of
$3,000. In addition, the Trustees were reimbursed expenses incurred with
connection to their attendance at meetings of the Board of Trustees. Members of
the Audit Committee also receive fees for meetings attended. However, no Officer
of the Trust receives any compensation directly from the Trust for performing
the duties of their offices. The Advisor, of which Messrs. Como and Ghriskey are
officers and/or trustees, receives fees from the Trust for acting as its
Investment Advisor. (See the section entitled "INVESTMENT ADVISOR.")
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of October 1, 1997 the Trustees and Officers of the Trust individually and as
a group owned beneficially less than 1.00% of the outstanding shares of any
Fund.
As of October 1, 1997 the following persons owned of record or beneficially
more than 5% of the outstanding voting shares of FIRST MUTUAL FUND:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OF SHARES HELD PERCENTAGE
- ------------------------------------ --------------------- ----------
<S> <C> <C>
Trainer, Wortham Profit Sharing Trust 397,019.535 14.36%
c/o Trainer, Wortham & Co., Inc.
845 Third Avenue, 6th Floor
New York, NY 10022
Perry R. Como 187,271.005 6.77%
c/o Trainer, Wortham & Co., Inc.
845 Third Avenue, 6th Floor
New York, NY 10022
Roncom Productions Employees 169,870.720 6.14%
Deferred Profit Sharing Trust
845 Third Avenue, 6th Floor
New York, NY 10022
Charles McVeigh 155,061.989 5.61%
Capital Account
c/o Trainer, Wortham & Co., Inc.
845 Third Avenue, 6th Floor
New York, NY 10022
</TABLE>
- --------------------------------------------------------------------------------
Trainer, Wortham First Mutual Funds - PEA #58 Page 7
<PAGE> 36
As of October 1, 1997 the following persons owned of record or beneficially
more than 5% of the outstanding voting shares of TOTAL RETURN BOND FUND:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OF SHARES HELD PERCENTAGE
- ------------------------------------ --------------------- ----------
<S> <C> <C>
H. Williamson Ghriskey, Jr. 276,813.078 29.14%
TRST Margot Marsh Biodiversity Foundation
c\o Trainer, Wortham & Co., Inc.
845 Third Avenue, 6th Floor
New York, NY 10022
HW Mali Profit Sharing Ret Plan 142,454.233 14.99%
c\o Trainer, Wortham & Co., Inc.
845 Third Avenue, 6th Floor
New York, NY 10022
Daniel U. Escaro 102,812.140 10.82%
TRST York Labs PSP
DTD N/A
c/o York Hospital
1001 S. George Street
York, PA 17405
</TABLE>
- --------------------------------------------------------------------------------
Trainer, Wortham First Mutual Funds - PEA #58 Page 8
<PAGE> 37
<TABLE>
<S> <C> <C>
Esnesta Krackiewica 58,332.234 6.14%
3401 38th St. NW Apt. 509
Washington, DC 20016
Kalman I. Nulman 52,641.449 5.54%
TRST Milton Brown Foundation
c/o Trainer, Wortham & Co., Inc.
845 Third Avenue, 6th Floor
New York, NY 10022
Mary B. Menzies 51,487.164 5.42%
c\o Trainer, Wortham & Co., Inc.
845 Third Avenue, 6th Floor
New York, NY 10022
Michael Prendergast 49,591.743 5.22%
and Ralph Duncan
TRST Urology Associates of York PC PSP
25 Monumnet Rd. STE 100
York, PA 17403
</TABLE>
INVESTMENT ADVISOR
In 1981, Trainer, Wortham & Co., Inc. ("the Advisor") became the Investment
Advisor of the Trust. The Advisor has offices at 845 Third Avenue, 6th Floor,
New York, N.Y. 10022. The Advisor, organized in 1981, continues an investment
counseling business which began in 1924 as Trainer & Associates. The Advisor is
registered as an investment advisor under the Investment Advisers Act of 1940,
as amended, and supervises approximately $2.3 billion in investment accounts.
The Advisor is owned entirely by the officers active in the day-to-day
management of portfolios. By reason of his stock ownership of 32% of the
Advisor, Charles V. Moore, President may be said to be a "controlling person" of
that firm.
- --------------------------------------------------------------------------------
Trainer, Wortham First Mutual Funds - PEA #58 Page 9
<PAGE> 38
The Directors of the Advisor are: A. Alexander Arnold III, David P. Como, H.
Williamson Ghriskey, Jr., and Charles V. Moore. Mr. Como, Managing Director of
the Advisor, is the President and a Trustee of the Trust. Since 1982, Mr. Como
has been primarily responsible for the day-to-day investment management of the
Trust's portfolio. Mr. Ghriskey, Jr., Managing Director of the Advisor, is
Vice-President, and Treasurer of the Trust.
Each Fund's Investment Advisory Agreement provides that, subject to the general
supervision of the Trust's Board of Trustees and in accordance with the Fund's
investment objectives, policies, and restrictions, the Advisor will manage the
Fund's investment portfolio, make decisions with respect to and place orders for
all purchases and sales of the portfolio securities. Pursuant to the Investment
Advisory Agreements, the Advisor is not liable for any mistake of judgment,
mistake of law, or other loss to a Fund in connection with its performance under
the Investment Advisory Agreements except a loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation for its services or a
loss resulting from willful misfeasance, bad faith or gross negligence on the
part of the Advisor in the performance of its duties, or by reason of its
reckless disregard of its obligations under the Investment Advisory Agreements.
Pursuant to individual Investment Advisory Agreements, with respect to FIRST
MUTUAL FUND, the Advisor receives an annual investment advisory fee, accrued
daily and paid monthly, of 0.75% of the Fund's average daily net assets; and
with respect to TOTAL RETURN BOND FUND, the Advisor receives an annual fee,
accrued daily and paid monthly , of 0.45% of the Fund's average daily net
assets. From time to time, the Advisor may waive receipt of its fees and/or
voluntarily assume certain Fund expenses, which would have the effect of
lowering a Fund's expense ratio and increasing yield to investors at the time
such amounts are waived or assumed, as the case may be. No Fund will reimburse
the Advisor at a later time for the expenses it has assumed.
For the fiscal years ended June 30, 1997, 1996 and 1995, with respect to FIRST
MUTUAL FUND, the Fund paid the Advisor fees aggregating $235,424, $191,340, and
$139,966, respectively.
With respect to TOTAL RETURN BOND FUND, from October 1, 1996 through June 30,
1997, the Advisor earned $22,431, all of which it voluntarily waived.
ADMINISTRATOR
FPS Services, Inc., ("FPS"), 3200 Horizon Drive, P.O. Box 61503, King of
Prussia, Pennsylvania 19406-0903, serves as the Trust's Administrator pursuant
to an Administration Agreement (the "Administration Agreement") FPS is an
affiliate of the Trust's Distributor, FPS Broker Services, Inc. Pursuant to the
Administration Agreement, FPS receives an annual fee, accrued daily and paid
monthly, of 0.15% on the first $50 million of the average daily net assets of
the Trust, 0.10% on the next $50 million of the average daily net assets of the
Trust; and 0.05% on average daily net assets of the Trust over $100 million,
subject to a minimum fee of $72,000 for the Trust. Minimum fees are $48,000 per
year for the first Series, and $12,000 for each additional Series or class. The
Trust pays the fees and out-of-pocket costs of FPS.
- --------------------------------------------------------------------------------
Trainer, Wortham First Mutual Funds - PEA #58 Page 10
<PAGE> 39
The services FPS provides to the Trust include: the coordination and monitoring
of any third parties furnishing services to the Trust; providing the necessary
office space, equipment and personnel to perform administrative and clerical
functions for the Trust; preparing, filing and distributing proxy materials,
periodic reports to shareholders, organization of Board meetings, registration
statements and other documents; and responding to shareholder inquiries.
With respect to FIRST MUTUAL FUND, FPS received administration fees of $55,489,
$45,248, and $42,007, for the fiscal years ended June 30, 1997, 1996, and 1995,
respectively. For the fiscal period ended June 30, 1997, TOTAL RETURN BOND FUND
paid FPS administration fees of $9,270.
DISTRIBUTOR
FPS Broker Services, Inc. ("FPSB") serves as the Trust's Distributor pursuant to
an Underwriting Agreement (the "Underwriting Agreement"). FPSB is an affiliated
company of the Administrator, FPS, inasmuch as both FPSB and FPS are under
common ownership.
The Underwriting Agreement will terminate in the event of assignment and may be
renewed for successive one-year periods provided that each continuance is
specifically approved by (1) the vote of a majority of the Trust's outstanding
voting shares or by the Board of Trustees and (2) the vote of a majority of the
Board of Trustees who are not "interested persons" of the Trust and who have no
direct or indirect financial interest in the Underwriting Agreement.
DISTRIBUTION PLAN
FIRST MUTUAL FUND has adopted a Plan of Distribution (the "Plan") pursuant to
Rule 12b-1 under the Act. The Plan permits the Fund to pay certain expenses
associated with the distribution of its shares. The Plan provides that FIRST
MUTUAL FUND will reimburse FPSB for actual distribution and shareholder
servicing expenses incurred by FPSB not exceeding, on an annual basis, 0.25% of
the Fund's average daily net assets.
In adopting the Plan, the Board of Trustees considered the likelihood that the
Plan is designed to benefit the Fund and its shareholders by strengthening the
system for distributing the Fund's shares and thereby increasing sales and
reducing redemptions. Potential benefits from increased sales and reduced
redemptions include: (i) additional funds being available for investment,
thereby giving the Fund's portfolio manager greater flexibility in pursuing the
Fund's investment objectives; (ii) reducing the likelihood that an unusually
large demand for redemption would require disadvantageous liquidations of
portfolio investments; and (iii) increasing net assets, thereby reducing on a
per share basis those expenses which do not rise proportionately with net
assets. The Board of Trustees concluded that there was a reasonable likelihood
that the Fund and its shareholders would benefit from the adoption of the Plan.
The Plan will terminate in the event of assignment and may be renewed for
successive one year periods provided that each continuance is specifically
approved by: (1) the vote of a majority of the Fund's outstanding voting shares
or by the Board of Trustees; and (2) the vote of a majority of the Board of
Trustees who are not "interested persons" of the Fund and who have no direct or
indirect financial interest in the Plan.
Any change in a Plan that would materially increase the amount of distribution
expense borne by the Fund requires shareholder approval; any other material
change requires approval by the Board of Trustees, including a majority of the
disinterested trustees as described above. While a Plan is in effect, the
selection and nomination of a Fund's disinterested Trustees is committed to the
disinterested Trustees.
- --------------------------------------------------------------------------------
Trainer, Wortham First Mutual Funds - PEA #58 Page 11
<PAGE> 40
The Plan authorizes the Fund to pay service organizations, which may include
but are not limited to: (1) compensation to securities brokers and dealers for
selling shares; (2) compensation to securities brokers and dealers, accountants,
attorneys, investment advisors and pension actuaries for services rendered to
their clients relating to the distribution of shares of the Fund; (3)
compensation to such parties for marketing research and promotional services
specifically relating to the distribution of Fund shares; (4) the costs of
advertising in newspapers, magazines or other periodicals, or on radio or
television; (5) the costs of telephone (including "WATS" and "800" services),
mail (including postage and other delivery costs) or other direct solicitation
of prospective investors; (6) the costs of preparing and printing prospectuses
and other sales material for prospective investors, and the cost of distributing
these materials; (7) the fees of public relations consultants; and (8) any other
distribution expenses that the Board of Trustees may from time to time approve
before such expenses are incurred.
All such payments made pursuant to a Plan shall be made for the purpose of
selling shares issued by the Fund. Payments of compensation pursuant to (3)
above may be based in whole or in part on a percentage of the regular salary
expense for those employees of such parties engaged in marketing research and
promotional services specifically relating to the distribution of Fund shares
based on the amount of time devoted by such employees to such activities, and
any out-of-pocket expenses associated with the distribution of Fund shares.
The Plan provides that FPSB will be reimbursed on a monthly basis for expenses
incurred in connection with the distribution of Fund shares. During the fiscal
year ended June 30, 1997, distribution expenses for FIRST MUTUAL FUND were
reimbursed as follows:
<TABLE>
<CAPTION>
EXPENSE ITEM AMOUNT
<S> <C>
Advertising and Printing..............................................$39,367.70
Marketing Support Personnel
and Salaries........................................................$34,737.35
Travel/Marketing Meetings..............................................$4,291.72
TOTAL 12B-1 EXPENSES..................................................$78,396.77
</TABLE>
TRANSFER AGENT AND ACCOUNTING SERVICES AGENT
FPS serves as the Trust's Transfer Agent, Dividend Disbursing Agent and
Redemption Agent pursuant to a Transfer Agent Services Agreement and also serves
as the Trust's Accounting Services Agent pursuant to an Accounting Services
Agreement (the "Accounting and Transfer Agent Services Agreements"). The
Accounting and Transfer Agent Services Agreements will continue in effect from
year to year, provided such continuance is specifically approved at least
annually by the Board of Trustees or by a vote of a majority of the outstanding
shares of the Trust (as defined under the section entitled "GENERAL INFORMATION"
in the Prospectus), and a majority of the Board of Trustees who are not
interested persons (as defined in the Act) of any party to the respective
Agreements, by votes cast in person at a meeting called for such purpose.
The Accounting and Transfer Agent Services Agreements provide generally that FPS
shall be indemnified against liabilities to the Trust in connection with matters
relating to the Accounting and Transfer Agent Services Agreements except those
arising out of willful misfeasance, bad faith or gross negligence on the part of
FPS in the performance of its duties or from reckless disregard of its
obligations and duties thereunder.
The Trust pays FPS an annual fee of $15.00 per shareholder account (subject to a
minimum monthly fee of $ $2,250) for its services as Transfer Agent, Dividend
Disbursing Agent and Redemption Agent. For accounting services, FPS receives
from the Trust an annual fee, payable monthly, of $24,000 on the first $10
million of average daily net assets; .0004% on the next $40 million of average
daily net assets; .0003% of the next $50 million of average daily net assets;
and .0001% of average daily net assets in excess of $100 million.
- --------------------------------------------------------------------------------
Trainer, Wortham First Mutual Funds - PEA #58 Page 12
<PAGE> 41
CUSTODIAN
UMB Bank, KC, NA, P.O. Box 412797, Kansas City, MO is Custodian for the
securities and cash of each Fund.
LEGAL COUNSEL
Dechert, Price & Rhoads, Washington, DC serves as Counsel to the Trust.
AUDITORS
Briggs, Bunting and Dougherty, LLP, 2121 Two Logan Square, 18th & Arch Streets,
Philadelphia, PA 19103-4901 have been selected as the independent accountants
for the Funds and will provide audit and tax services. The books of the Funds
will be audited at least once each year by Briggs, Bunting and Dougherty, LLP.
BROKERAGE
It is the policy of each Fund to secure the execution of orders on its portfolio
transactions in an effective manner at the most favorable price. Pursuant to its
agreement with each Fund, the Advisor determines, subject to the general
supervision of the Board of Trustees and in accordance with the Fund's
investment objectives, policies and restrictions, which securities are to be
purchased and sold and which brokers are to be eligible to execute its portfolio
transactions. It is not the policy of the Funds to deal solely with one broker,
but it is each Fund's intention to place portfolio transactions with those
brokers which provide the most favorable combination of price, execution and
services to the Trust. Research services are a factor in selection of brokers,
but payment in excess of brokerage commissions charged by other brokers is not
made in recognition of research services. The reasonableness of brokerage
commissions is evaluated by comparison to fees charged by other brokers where
the execution and services are comparable.
During the fiscal year ended June 30, 1997, FIRST MUTUAL FUND paid a total of
$99,150.57 in brokerage commissions; $73,171.25 for fiscal year 1996; and
$132,302.77 for fiscal year 1995. The Board of Trustees, including a majority
of the disinterested Trustees, have adopted certain procedures pursuant to Rule
17e-1 governing brokerage transactions between the Trust and affiliated
brokers. The Trust has, in the past, paid brokerage commissions to brokers
which are affiliated with Officers and Trustees of the Trust. During the fiscal
years ended June 30, 1997, 1996 and 1995 the Trust paid no such brokerage
commissions.
INDIVIDUAL RETIREMENT ACCOUNTS
Each Fund offers certain IRAs for use by any individual with compensation
for services rendered (including earned income from self-employment) who wishes
to use shares of the Fund as a funding medium for individual retirement saving.
The only exception is an individual who has attained, or will attain, age 70
1/2 before the end of the taxable year. Such an individual may only contribute
to an IRA for his or her nonworking spouse under age 70 1/2.
- --------------------------------------------------------------------------------
Trainer, Wortham First Mutual Funds - PEA #58 Page 13
<PAGE> 42
Many changes to existing IRA tax laws became effective in 1997, including
the execution of two new types of IRAs, as discussed in the Prospectus.
In an IRA, distributions of net investment income and capital gains will be
automatically reinvested in the Fund. Retirement plan participants will be
billed for all maintenance fees which are to be paid to UMB Bank, MO. Payment
may be made through liquidation of shares of the Fund.
UMB Bank furnishes custodial services for the IRA for a service fee chargeable
as follows: (a) annual maintenance fee - $10 (per participant's account); (b)
lump sum distribution or termination fee - $7 (per participant's account); and
(c) periodic cash distributions - $1 (each payment).
The foregoing brief description is not a complete or definitive explanation of
the IRAs available for investment in the Funds. Any person who wishes to
establish a retirement plan account may do so by contacting the Funds. The
complete IRA documents and applications will be provided to existing or
prospective shareholders upon request, without obligation. Since an IRA
involves a commitment covering future years, it is important that the investor
consider his or her needs and whether the investment objective of the Funds as
described in the Prospectus and this Statement of Additional Information is
most likely to fulfill them. The Funds recommends that investors consult their
attorneys or tax advisors if they are uncertain that the retirement programs
described herein are appropriate for their needs.
PERFORMANCE CALCULATIONS
Funds compute their average annual total return by determining the average
annual compounded rate of return during specified periods that equate the
initial amount invested to the ending redeemable value of such investment. This
is done by dividing the ending redeemable value of a hypothetical $1,000 initial
payment by $1,000 and raising the quotient to a power equal to one divided by
the number of years (or fractional portion thereof) covered by the computation
and subtracting one from the result. This calculation can be expressed as
follows:
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Trainer, Wortham First Mutual Funds - PEA #58 Page 14
<PAGE> 43
ERV = P(1 + T)to the power of n
Where: ERV = ending redeemable value at the end of the period
covered by the computation of a hypothetical
$1,000 payment made at the beginning of the
period.
P = hypothetical initial payment of $1,000.
n = period covered by the computation, expressed in
terms of years.
T = average annual total return.
The Funds compute their aggregate total return by determining the aggregate
compounded rate of return during specified period that likewise equate the
initial amount invested to the ending redeemable value of such investment. The
formula for calculating aggregate total return is as follows:
Aggregate Total Return = [ (ERV) - 1 ]
-----
P
Where: ERV = ending redeemable value at the end of the period
covered by the computation of a hypothetical
$1,000 payment made at the beginning of the
period.
P = hypothetical initial payment of $1,000.
The calculations of average annual total return and aggregate total return
assume the reinvestment of all dividends and capital gain distributions on the
reinvestment dates during the period. The ending redeemable value (variable
"ERV" in each formula) is determined by assuming complete redemption of the
hypothetical investment and the deduction of all nonrecurring charges at the end
of the period covered by the computations.
Based on the foregoing calculations, the average annual total returns for the
FIRST MUTUAL FUND for the one year, five year and ten year periods ended June
30, 1997 were 7.67%, 16.69% and 10.37%, respectively. The aggregate total
returns for the same five and ten year periods were 116.37% and 168.22%,
respectively. The total return for TOTAL RETURN BOND FUND for the period from
October 1, 1996 (commencement of operations) through June 30, 1997 was 4.90%.
The Trainer, Wortham Total Return Bond Fund may also quote its yield in
advertisements and investor communications. The yield computation is determined
by dividing the net investment income per share earned during a recent 30-day
(or one month) period by the maximum offering price per share on the last day of
that period and annualizing the resulting figure, according to the following
formula:
YIELD = 2 [ ( a - b + 1) to the sixth power - 1 ]
------
cd
Where: a = dividends and interest earned during the period;
b = expenses accrued for the period (net of reimbursements);
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends; and
d = the maximum offering price per share on the last day of
the period.
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Trainer, Wortham First Mutual Funds - PEA #58 Page 15
<PAGE> 44
For the thirty day period ended June 30, 1997, TOTAL RETURN BOND FUND had a
yield of 5.77%. Since performance will fluctuate, performance data for the Funds
should not be used to compare an investment in the Fund's shares with bank
deposits, savings accounts and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
Shareholders should remember that performance is generally a function of the
kind and quality of the instruments held in a portfolio, portfolio maturity,
operating expenses and market conditions.
GENERAL INFORMATION
As used in the Funds' Prospectus and this Statement of Additional Information,
the holders of "a majority of the outstanding shares" of a Fund means the vote
of the lesser of: (a) 67% or more of the shares present at any annual or special
meeting of shareholders, if the holders of more than 50% of the outstanding
shares are present or represented by proxy at the meeting; or (b) more than 50%
of the outstanding shares of the Fund.
Shareholder inquiries should be directed to the Fund at the address or telephone
number listed on the front cover of this Statement of Additional Information.
Shareholders are urged to put significant inquiries or complaints in writing.
The Trust is registered with the Securities and Exchange Commission as a
management investment company. Such registration does not involve supervision by
the Commission of the management or policies of the Trust.
The Funds' Prospectus and this Statement of Additional Information are not an
offering of the securities herein described in any state in which such offering
may not lawfully be made. No salesman, dealer or other person is authorized to
give any information or make any representation other than those contained in
the Funds' Prospectus and this Statement of Additional Information.
FINANCIAL STATEMENTS
The Audited financial statements and notes thereto for each Fund, contained in
the Annual Report to Shareholders dated June 30, 1997, are incorporated by
reference into this Statement of Additional Information and have been audited by
Briggs, Bunting and Dougherty, LLP., whose report also appears in the Annual
Report and is also incorporated by reference herein. No other parts of the
Annual Report are incorporated by reference herein. Such financial statements
and notes thereto have been incorporated herein in reliance on the report of
Briggs, Bunting and Dougherty, LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
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Trainer, Wortham First Mutual Funds - PEA #58 Page 16
